Citibank Na South Dakota Bank Deposit Program

The Dodd-Frank Act’s expansion of state authority to protect consumers of financial services.

  I. INTRODUCTION
 II. FEDERAL BANKING AGENCIES FAILED TO PROTECT CONSUMERS DURING THE
     HOUSING BOOM AND PREVENTED THE STATES FROM DOING SO
     A. The FRB Failed to Exercise Its Authority under HOEPA to Stop
        Predatory Lending
     B. The FRB Failed to Regulate Nonprime Lenders That Were
        Subsidiaries of Bank Holding Companies
     C. Federal Banking Agencies Issued Weak and Inadequate Guidance
        on nonprime Mortgages
     D. Federal Regulators Failed to Stop Predatory Lending Because of
        Their Belief in Deregulation and "Pushback" from the Financial
        Services Industry
        1. The FRB, the OTS and the OCC Followed Deregulatory Policies
           During the Nonprime Lending Boom
        2. The Financial Services Industry Strongly Resisted Efforts
           by Federal Regulators to Restrict Nonprime Mortgage Lending
     E. The OTS and the OCC Preempted Initiatives by the States to
        Stop Predatory Lending, Thereby Aggravating the Severity of
        the Financial Crisis
        1. Many States Adopted Laws and Brought Enforcement Actions to
           Stop Predatory Lending
        2. The OTS and the OCC Preempted State APL Laws and State
           Enforcement Efforts
        3. The Industry-Based Funding for the OTS and OCC Created a
           Conflict of Interest Between Their Supervisory Duties and
           Their Budgetary Concerns
        4. OTS and OCC Preemption Helped Federal Thrifts and National
           Banks to Establish Leading Positions as Subprime and Alt-A
           Mortgage Lenders
        5. The OTS, the OCC, and the FRB Failed to Prevent the
           Failures of Several Major Financial Institutions That Were
           Heavily Engaged in Originating and Securitizing Nonprime
           Mortgages
III. TITLE X OF DODD-FRANK GRANTS SUPPLEMENTAL LAWMAKING AND LAW
     ENFORCEMENT POWERS TO THE STATES AND IMPOSES SIGNIFICANT
     RESTRICTIONS ON THE OCC'S AUTHORITY TO PREEMPT STATE LAWS

     A. Title X Establishes a Federal "Floor" of Protection for
        Consumers of Financial Services
     B. Title X Empowers the States to Adopt Laws Providing Additional
        Protection to Consumers of Financial Services
     C. Title X Enables State Attorneys General to Enforce the CFP Act
        and the CFPB's Regulations
     D. Dodd-Frank Limits the Preemptive Authority of the OCC with
        Respect to National Banks and Federal Thrifts
        1. Dodd-Frank Establishes New Preemption Standards That Govern
           the Application of State Consumer Financial Laws to
           National Banks and Federal Thrifts
        2. Dodd-Frank's New Standards Significantly Limit the OCC's
           Authority to Preempt State Consumer Financial Laws
           a. Under Dodd-Frank, the OCC May Preempt a State Consumer
              Financial Law Only If That Law Prevents or Significantly
              Interferes With a National Bank's Exercise of Its Powers
           b. Dodd-Frank Requires the OCC to Act on a Case-by-Case
              Basis, to Show Substantial Evidence for Its Preemptive
              Determinations, and to Publish and Review Its
              Determinations Periodically
           c. Dodd-Frank Confirms that the NBA Is Governed by Conflict
              Preemption Rules, and that OCC Preemption Determinations
              Are Not Entitled to Chevron Deference
           d. Dodd-Frank Denies Preemptive Immunity to Most
              Subsidiaries, Affiliates and Agents of National Banks
        3. Dodd-Frank Requires the OCC to Rescind or Modify Its
           Existing Preemption Rules Except for the Regulation
           Governing the Charging of "Interest" under 12 U.S.C.
           [section] 85
           a. The OCC's Preemption Test Conflicts with the Barnett
              Bank Preemption Standard Incorporated by Dodd-Frank
           b. The OCC's Blanket Preemption Rules Are No Longer Valid
              in View of Dodd-Frank's Mandate for "Case-by-Case"
              Determinations Supported by "Substantial Evidence"
           c. The OCC's Preemptive Rule for Operating Subsidiaries
              Conflicts with Dodd-Frank
           d. The OCC's Existing Preemption Rules Must Conform to
              Dodd-Frank by July 21, 2011
        4. Dodd-Frank Affirms the Authority of State AGs to Enforce
           Applicable Laws Against National Banks
        5. Dodd-Frank Establishes Preemption Standards under HOLA That
           Are Equivalent to Those Embodied in the NBA
        6. Dodd-Frank Does Not Address State Laws of General
           Application, But Those Laws Should Presumptively Apply to
           National Banks under Existing Judicial Precedents
 IV. TITLE X OF DODD-FRANK CREATES A REGIME OF INTERACTIVE
     FEDERALISM THAT WILL PROVIDE BETTER SAFEGUARDS FOR CONSUMERS OF
     FINANCIAL SERVICES
     A. Title X Will Promote Beneficial Cooperation, Competition, and
        Innovation by CFPB and State Officials
     B. Title X Reduces the Risk that CFPB Might Be Captured by the
        Financial Services Industry
  V. CONCLUSION

I. INTRODUCTION

On July 21, 2010, President Barack Obama signed into law the
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
(1) The statute’s preamble states that one of Dodd-Frank’s
purposes is “to protect consumers from abusive financial services
practices.” (2) When President Obama signed Dodd-Frank into law, he
declared that the statute would create “the strongest consumer
financial protections in history.” (3)

In order to implement and enforce Dodd-Frank’s new protections
for consumers, Congress created the Bureau of Consumer Financial
Protection (CFPB) as an “independent bureau” within the
Federal Reserve System (Fed). (4) President Obama explained that CFPB
will operate as “a new consumer watchdog with just one job: looking
out for people–not big banks, not lenders, not investment
houses–looking out for people as they interact with the financial
system.” (5) Similarly, the Senate committee report on Dodd-Frank
explained that CFPB’s mission is to “help protect consumers
from unfair, deceptive, and abusive acts that so often trap them in
unaffordable financial products.” (6)

Thus, Congress gave CFPB “the Herculean task of regulating the
financial services industry to protect consumers.” (7) Congress
sought to increase CFPB’s “accountability” for that
mission by delegating to CFPB the combined authority of seven federal
agencies that were previously responsible for protecting consumers of
financial services. (8) Congress determined that a single federal
authority dedicated to protecting consumers of financial services was
needed in light of “the spectacular failure of the [federal]
prudential regulators to protect average American homeowners from risky,
unaffordable” mortgages during the housing boom that led to the
financial crisis of 2007 to 2009. (9) As stated in the Senate report,
and as further explained in Part II of this Article, federal banking
agencies “routinely sacrificed consumer protection” while
adopting policies that promoted the “short-term profitability”
of large banks, nonbank mortgage lenders and Wall Street securities
firms. (10) The Senate report concluded that “the failure by the
prudential regulators to give sufficient consideration to consumer
protection … helped bring the financial system down.” (11)

To provide additional safeguards to consumers, Dodd-Frank enables
the states to supplement CFPB’s rulemaking and enforcement efforts.
Congress realized that many states attempted to stop abusive mortgage
lending practices during the housing boom by adopting and enforcing
state laws. (12) However, “rather than supporting these
anti-predatory lending laws, federal regulators preempted them.”
(13) As explained in the Senate report and as further discussed in Part
II.E of this Article, two federal banking agencies–the Office of the
Comptroller of the Currency (OCC) and the Office of Thrift Supervision
(OTS)–“actively created an environment where abusive mortgage
lending could flourish without State control.” (14)

To correct the problems created by federal preemption, Dodd-Frank
enlarges both the lawmaking and law enforcement functions of the states
in the area of consumer financial protection. As described in Part III
of this article, Title X of Dodd-Frank empowers CFPB to issue
regulations that establish a federal “floor” of consumer
protection and authorizes the states to adopt additional substantive
rules that provide greater safeguards to consumers. Dodd-Frank also
allows state officials to enforce the statutory provisions of Title X as
well as CFPB’s regulations and applicable state laws. The Senate
report endorsed these grants of enhanced authority to the states, noting
that “States are much closer to [financial] abuses and are able to
move more quickly when necessary to address them.” (15)

Moreover, Dodd-Frank abolishes the OTS, limits the preemptive
authority of the OCC, and clarifies the states’ authority to apply
and enforce their consumer financial protection laws against national
banks and federally-chartered savings associations (federal thrifts).
Under the new preemption standards established by Title X of Dodd-Frank,
(i) state consumer financial laws will apply to national banks and
federal thrifts unless they prevent or significantly interfere with the
exercise of national bank powers; (ii) the OCC will have authority to
preempt state laws only on a case-by-case basis and only if its
preemption determinations are supported by substantial evidence; (iii)
state laws will generally apply to the subsidiaries, affiliates and
agents of national banks and federal thrifts; and (iv) state attorneys
general will have authority to enforce applicable laws–including
non-preempted state laws and CFPB’s regulations–against national
banks and federal thrifts through judicial enforcement proceedings.

Part IV of this Article situates Title X of Dodd-Frank within
contemporary debates about the proper role of state lawmaking and state
enforcement in the area of consumer protection. By enabling states to
construct additional safety measures on top of the federal
“floor” of consumer financial protections, Title X of
Dodd-Frank affirms the longstanding role of states as “laboratories
of regulatory experimentation” in identifying emerging threats to
consumer welfare and designing new legal rules to counteract those
threats. (16) In addition, the supplemental enforcement powers granted
to states under Title X enables state officials to act as
“normative entrepreneurs” in protecting their citizens from
unfair, deceptive, or abusive financial practices in circumstances where
CFPB or other federal agencies might fail to act. (17) Finally, the
independent lawmaking and law enforcement roles delegated to the states
by Title X provide important safeguards against the potential risk that
CFPB could be “captured” over time by the financial services
industry. (18)

II. FEDERAL BANKING AGENCIES FAILED TO PROTECT CONSUMERS DURING THE
HOUSING BOOM AND PREVENTED THE STATES FROM DOING SO

Regulatory inaction and preemption by federal banking agencies
played a significant role in allowing abusive nonprime lending to grow
and spread during the past decade. Nonprime lenders originated almost 10
million subprime and Alt-A mortgage loans between 2003 and 2007, and by
2008 about $2 trillion of such loans were outstanding. (19)
Unfortunately, the Federal Reserve Board (FRB) failed to exercise its
authority under the Home Ownership and Equity Protection Act (HOEPA)
(20) to prevent unfair and deceptive acts and practices in residential
mortgage lending. The FRB also failed to stop abusive lending practices
by nonbank mortgage lenders that were subsidiaries of bank holding
companies. (21)

In contrast, the states did try to stop predatory lending. As
discussed below, 30 states and the District of Columbia adopted
anti-predatory lending (APL) laws between 1999 and 2007. (22) However,
the OCC and the OTS issued regulations that preempted state APL laws.
Those rules barred states from applying their APL laws to national banks
and federal thrifts, as well as their mortgage lending subsidiaries and
agents. In addition, the OCC and the OTS failed to take effective action
to stop abusive nonprime lending practices by national banks, federal
thrifts, and affiliated entities.

Federal regulatory inaction and federal preemption encouraged
federally-chartered depository institutions and their affiliates to
become leading participants in nonprime mortgage lending. Ultimately,
the regulatory failures of the FRB, the OCC, and the OTS contributed to
defaults and foreclosures on millions of nonprime loans. By December
2010, lenders had foreclosed on about 5 million homes, and 4 million
additional foreclosures were expected to occur in 2011 and 2012. (23) In
addition, reckless lending by federally-chartered depository
institutions and their affiliates led to the failures or government
bailouts of several of the largest national banks and federal thrifts,
including Citigroup, Wachovia, Washington Mutual, National City and
IndyMac.

A. The FRB Failed to Exercise Its Authority under HOEPA to Stop
Predatory Lending

In 1994, Congress passed HOEPA to prevent abusive lending practices
in certain segments of the residential mortgage market. (24) Most of
HOEPA’s requirements are directed at “high-cost” mortgage
refinancing loans; accordingly, those requirements do not apply to
purchase mortgages, reverse mortgages, and home equity lines of credit.
(25) However, one section of HOEPA authorizes the FRB to issue
regulations and orders to “prohibit acts or practices in connection
with … mortgage loans that the [FRB] finds to be unfair, deceptive, or
designed to evade the provisions of this section.” (26) Under that
provision, HOEPA gives the FRB broad authority to stop unfair and
deceptive lending practices by all types of federally-chartered and
state-chartered lenders with respect to all types of mortgages. (27)

As required by HOEPA, the FRB held a series of public hearings on
predatory lending between 1997 and 2000. (28) Following those hearings,
members of the FRB’s staff proposed that the FRB adopt new rules
under HOEPA. (29) The proposed rules would have prohibited all lenders
from making mortgage loans based solely on the value of the collateral
and without properly documenting the borrowers’ ability to repay
the loans. (30) However, FRB Chairman Alan Greenspan and other members
of the FRB’s Board of Governors rejected the staff proposals. (31)
Instead, the FRB adopted a regulation that slightly expanded the
definition of “high-cost” loans and thereby modestly enlarged
the scope of HOEPA’s regulatory regime for mortgage refinancing
loans. (32) As a practical matter, the FRB’s 2001 regulation
covered “only about 1% of subprime loans” because subprime
lenders changed the terms of their loans to avoid the FRB’s revised
definition for application of HOEPA. (33)

The FRB did not adopt another regulation under HOEPA until July
2008, when it issued comprehensive rules to ban unfair and deceptive
practices with respect to a much broader category of “higher-priced
mortgage loans.” (34) However, the Fed’s 2008 rules–which
finally required lenders to verify borrowers’ ability to repay
higher-priced loans–were issued “a year after the subprime market
had shut down.” (35) Accordingly, the 2008 rules were “too
little and too late” to play any role in preventing the predatory
nonprime lending that led to the financial crisis. (36)

At a hearing held by the Financial Crisis Inquiry Commission (FCIC)
in September 2010, Commissioner John Thompson asked FDIC Chairman Sheila
Bair, “[I]f you had one bullet that you could fire as a regulator
that would have mitigated or … prevented this financial calamity, what
would that have been?” (37) Chairman Bair replied: “I
absolutely would have been over at the [FRB] writing rules, prescribing
mortgage lending standards across the board for everybody, bank and
nonbank, that you cannot make a mortgage unless you have documented
income that the borrower can repay the loan.” (38) Chairman
Bair’s reply highlighted the significance of the FRB’s failure
to exercise its authority to stop predatory lending under HOEPA.

B. The FRB Failed to Regulate Nonprime Lenders That Were
Subsidiaries of Bank Holding Companies

The Bank Holding Company Act of 1956 (BHC Act) empowers the FRB to
regulate nonbank subsidiaries of bank holding companies (BHCs). (39)
Nevertheless, the FRB chose not to exercise its authority to regulate
nonbank mortgage lending subsidiaries of BHCs between 1998 and 2007. As
a result, the FRB failed to stop lending abuses by several major
nonprime lenders that were affiliated with BHCs.

In January 1998, the FRB “formalized its long-standing policy
of ‘not routinely conducting consumer compliance examinations of
nonbank subsidiaries of [BHCs].'” (40) Some FRB officials and
staff members subsequently tried to change this no-supervision policy
for mortgage lending subsidiaries after they saw growing evidence of
mortgage lending abuses. (41) In 2000, members of the Fed’s
consumer division staff proposed that the FRB undertake a pilot program
to investigate predatory lending practices at selected nonbank
subsidiaries of BHCs. (42) Former FRB Governor Edward Gramlich, who
served on the Board of Governors between 1999 and 2005, urged FRB
Chairman Greenspan to implement the pilot program. (43) However,
Chairman Greenspan rejected the proposal. (44)

The FRB adhered to its no-supervision policy for nonbank mortgage
lending subsidiaries of BHCs despite two reports issued by the GAO in
1999 and 2004, which criticized the FRB’s “lack of regulatory
oversight” over such entities. (45) Chairman Greenspan later argued
that the FRB “lacked sufficient resources” to regulate the
nonbank subsidiaries and claimed that inadequate FRB supervision would
have given a misleading “Good Housekeeping” seal of approval
to such firms. (46) As a result of its no-supervision policy, the FRB
failed to regulate BHC subsidiaries that were responsible for a
substantial portion of subprime and Alt-A lending during the housing
boom. (47)

Between 1999 and 2007, several leading BHCs acquired nonprime
mortgage lenders and used those nonbank subsidiaries to establish
leading positions in the subprime and Alt-A mortgage markets. National
City, a large Midwestern bank, purchased First Franklin in 1999. (48)
Citigroup bought Associates First Capital in 2000 (49) and Argent (an
affiliate of Ameriquest) in 2007. (50) JP Morgan Chase acquired Advanta
in 2001, (51) and HSBC purchased Household in 2002. (52) Countrywide,
the nation’s largest mortgage lender, acquired a national bank and
became a BHC in 2001. (53) Countrywide also established a securitization
unit and expanded aggressively into subprime and Alt-A lending. (54)
Despite the growing significance of nonprime lending by BHC
subsidiaries, the FRB took only one public enforcement action against a
nonbank subsidiary of a BHC. (55) In a 2004 order, the FRB levied a fine
of $70 million against CitiFinancial (the subprime mortgage lending
subsidiary of Citigroup) for numerous lending violations. (56)

The FRB did not change its no-supervision policy for nonbank
subsidiaries of BHCs until July 2007, when it began a pilot program to
examine subprime lending subsidiaries of several BHCs. (57) In September
2009, the FRB finally reversed its 1998 policy statement and announced a
new policy to examine all nonbank subsidiaries of BHCs for compliance
with consumer lending laws.58 Again, the Fed’s policy change came
far too late to prevent the financial crisis.

C. Federal Banking Agencies Issued Weak and Inadequate Guidance on
Nonprime Mortgages

Instead of issuing binding rules to stop abusive nonprime lending,
the FRB joined with other federal banking agencies in issuing statements
of “guidance” on nonprime adjustable-rate mortgages (ARMs). In
October 2006, federal regulators issued guidance on
“nontraditional” mortgages, including “pick-a-pay”
option ARMs and mortgages issued with little or no documentation of the
borrowers’ income or assets. (59) Regulators issued the 2006
guidance after they discovered alarming concentrations of nontraditional
mortgages at major national banks and federal thrifts. (60)

The federal banking agencies also issued guidance on
“hybrid” subprime ARMs in July 2007. (61) The 2006 and 2007
statements of guidance advised depository institutions that they should
(i) underwrite each nonprime ARM based on the fully-amortized rate
instead of the introductory “teaser” rate, and (ii) verify the
borrower’s ability to repay the loan from sources other than the
foreclosure value of the borrower’s collateral. (62) However, both
statements of guidance were presented merely as advice on good
practices, were not directly enforceable by the agencies, and did not
give injured borrowers any right to file lawsuits if lenders failed to
follow the guidance. (63) For example, when regulators issued the 2006
guidance, Comptroller of the Currency John Dugan emphasized that the
guidance “is not a ban on the use of nontraditional mortgage
products” and “does not impose a limit on the number of
nontraditional mortgages that an institution may hold.” (64)

Federal regulators claimed that they enforced their statements of
guidance and other consumer protection laws through bank examinations
and “informal” enforcement measures such as voluntary
agreements with supervised institutions. (65) For example, in October
2006, OCC Chief Counsel Julie L. Williams told a financial services
group that the OCC “‘rarely’ brings an enforcement case,
and uses prudential regulation almost exclusively.” (66) In a
subsequent interview, Ms. Williams confirmed that the OCC’s
preferred approach for protecting consumers was “not public,”
and that the OCC did not “do press releases” for most of its
consumer compliance efforts. (67)

Because the federal agencies’ bank examinations and other
informal supervisory procedures were “highly confidential,”
the public could not determine whether regulated institutions actually
complied with the 2006 and 2007 interagency statements of guidance. (68)
As discussed below, several of the largest federally-chartered mortgage
lenders failed or received federal assistance after engaging in abusive
and unsound lending practices that violated both the 2006 and 2007
guidance. (69) The destructive behavior of those institutions indicated
that their managers viewed the interagency statements of guidance as
“mere ‘suggestions'” that they could ignore. (70)

D. Federal Regulators Failed to Stop Predatory Lending Because of
Their Belief in Deregulation and “Pushback” from the Financial
Services Industry

Two factors help to explain why federal regulators failed to stop
predatory nonprime lending practices. First, senior federal banking
officials doubted the effectiveness of regulation and strongly preferred
market-based solutions. Second, financial institutions strongly opposed
any attempts by banking agencies to impose restrictions on high-risk
mortgage lending.

1. The FRB, the OTS and the OCC Followed Deregulatory Policies
During the Nonprime Lending Boom

As shown above, the FRB failed to take measures that could have
stopped abusive nonprime lending practices between 1994 and 2008. (71)
FRB Chairman Alan Greenspan, who led the FRB from 1987 to 2006, played a
decisive role in the FRB’s decisions to refrain from adopting
strong rules under HOEPA and to forbear from supervising nonbank
mortgage lending subsidiaries of BHCs. (72) In a 2002 speech, Chairman
Greenspan expressed his general view that regulators should seek to
minimize any interference with innovation and competition in the
financial markets:

   Competition, of course, is the facilitator of innovation. And
   creative destruction, the process by which less-productive capital
   is displaced with innovative cutting-edge technologies, is the
   driving force of wealth creation. Thus, from the perspective of
   aggregate wealth creation, the more competition the better.

   ....

   While regulation must change as financial structures do, such
   regulatory change must be kept to a minimum to avoid fostering
   uncertainty among innovators and investors. Moreover, shifting
   regulatory schemes unavoidably leave obsolescent regulations in
   their wake....

   ... Those of us who support market capitalism in its
   more-competitive forms might argue that unfettered markets create a
   degree of wealth that fosters a more civilized existence. I have
   always found that insight compelling. (73)

Thus, there was “no truer believer in the ideology of free
markets, financial innovation, and deregulation” than Mr.
Greenspan. (74) He doubted whether most government regulation was
beneficial, and he championed Joseph Schumpeter’s view that market
innovation generated rising standards of living through a process of
“creative destruction” that eliminated obsolete businesses and
technologies. (75) In keeping with his deregulatory philosophy, Mr.
Greenspan maintained that market discipline and private risk management
produced better results than government regulation over the longer term.
(76)

FRB officials later confirmed that Mr. Greenspan’s opposition
to new regulatory initiatives reflected a broader “mindset” in
the Federal Reserve System that favored deregulation during the period
leading up to the financial crisis. As FRB General Counsel Scott Alvarez
explained, “The mind-set was that there should be no regulation;
that the market should take care of policing, unless there already is an
identified problem.” (77) Similarly, in 2009, the Federal Reserve
Bank of New York prepared a “lessons learned” report, which
acknowledged that federal regulators placed too much faith in the
assumption that “markets will always self-correct.” (78) The
report also admitted that the FRB’s belief in “the
self-correcting property of markets inhibited supervisors from imposing
prescriptive views on banks.” (79)

Senior officials at the OTS and OCC followed a similar policy of
“light touch” regulation during the decade leading up to the
financial crisis. (80) The OTS followed a policy of aggressive
deregulation and enthusiastically supported the interests of federal
thrifts, which it viewed as the agency’s clients. In 2004, OTS
Director James Gilleran affirmed that “[o]ur goal is to allow
thrifts to operate with a wide breadth of freedom from regulatory
intrusion.” (81) John Reich, who succeeded Mr. Gilleran as OTS
Director in 2005, described regulatory relief as his “favorite
topic” and “something near and dear to my heart.” (82)

Eugene Ludwig, who served as Comptroller of the Currency from 1993
to 1998, later explained that the OCC and other federal agencies
believed that “a lighter hand at regulation was the appropriate way
to regulate.” (83) In a speech delivered in May 2005, Acting
Comptroller of the Currency, Julie Williams, declared that the
OCC’s officials were “advocates on the national stage [for]
measures designed to make regulation more efficient, and less costly,
less intrusive, less complex, and less demanding on [bankers] and
[their] resources.” (84) She added that the OCC’s approach to
supervision “is a spacious framework, designed to accommodate
change.” (85) In September 2007, John Dugan, who served as
Comptroller from 2005 to 2010, testified at a congressional hearing that
the OCC was strongly opposed to legislative or regulatory restrictions
on financial “innovations” because “there are many
different kinds of innovations that have led to positive things and
sorting out which ones are the most positive and somewhat less positive
is generally not something that the Federal Government is good at
doing.” (86)

Consistent with the OTS’s deregulatory philosophy, the OTS did
not issue any formal regulations to stop predatory lending practices.
(87) The OTS also opposed the interagency guidance on nontraditional
lending and delayed its adoption for almost a year. (88) When the
guidance was finally issued in September 2006, OTS Director Reich
“described the guidance as ‘extremely controversial’ and
not something that OTS ‘would have issued on [its] own.'”
(89) Moreover, the OTS brought only “five to six” formal
enforcement actions against federal thrifts for “unfair and
deceptive practices” between 2000 and 2008. (90)

The OCC’s record of protecting consumers was only marginally
better than the OTS’s lamentable performance. The OCC adopted just
two substantive rules that were aimed at predatory lending. The first
rule prohibited national banks from committing unfair and deceptive acts
and practices in mortgage lending, (91) and the second rule barred
national banks from making mortgages without regard to the
borrower’s ability to repay the loan. (92) However, the OCC greatly
weakened the impact of the first rule by stating that it did not have
authority to issue regulations proscribing specific practices as unfair
or deceptive. (93) The OCC also watered down the second rule by stating
that national banks could use “any reasonable method to determine a
borrower’s ability to repay, including … credit history, or other
relevant factors.” (94) The OCC’s statement that national
banks could use “credit history, or other relevant factors” to
determine a borrower’s ability to pay allowed national banks to use
“such dubious practices as qualifying borrowers solely based on
their credit scores for low-doc or no-doc loans.” (95) As a result,
“through 2007, large national banks continued to make large
quantities of low- and no-documentation loans and subprime ARMs that
were solely underwritten to the introductory [teaser] rate.” (96)

Like the OTS, the OCC initiated only a small number of public
enforcement actions to protect consumers during the nonprime lending
boom. Between 1995 and the outbreak of the financial crisis in 2007, the
OCC issued only 13 public enforcement orders against national banks for
violations of consumer protection laws. (97) Most of the OCC’s
orders were issued against small national banks, and none of the orders
were issued against the top eight largest banks, even though large banks
were the subject of most of the consumer complaints filed with the OCC.
(98)

2. The Financial Services Industry Strongly Resisted Efforts by
Federal Regulators to Restrict Nonprime Mortgage Lending

In addition to the self-imposed obstacles created by deregulatory
policies, federal banking regulators encountered intense resistance from
the financial services industry whenever they tried to persuade banks to
reduce their involvement in high-risk lending. During a congressional
hearing in March 2008, FRB Vice Chairman Donald Kohn acknowledged that
advice offered by regulators in favor of more conservative lending
policies was “a very hard sell to the banks” during the credit
boom that led up to the financial crisis. (99) Similarly, Roger Cole,
who served as the FRB’s Director of Bank Supervision from 2006 to
2009, told the FCIC that FRB officials encountered significant
“pushback” when they urged bank executives to follow more
conservative risk management policies. (100)

Banks, thrifts, and nonbank mortgage lenders strongly opposed even
the weak and nonbinding regulatory guidance that federal regulators
issued in 2006 and 2007 with regard to nontraditional mortgages and
hybrid subprime ARMs. (101) When the FRB and other federal regulators
proposed the nontraditional guidance in late 2005, FRB officials
“got tremendous pushback from the industry as well as Congress as
well as … internally … [b]ecause it was stifling innovation,
potentially, and it was denying the American dream [of homeownership] to
many people.” (102) The American Bankers Association (ABA) asserted
that the proposed guidance “overstate[d] the risk of nontraditional
mortgages,” (103) while the Financial Services Roundtable declared
that it was “not aware of any empirical evidence that supports the
need for further consumer protection standards.” (104) Similarly,
when federal regulators proposed the guidance on hybrid subprime ARMs in
early 2007, trade associations representing banks, thrifts, and other
mortgage lenders argued that the guidance “may restrict credit to
many consumers in high-cost areas and deny credit to many deserving
low-income, minority, and first-time homebuyers.” (105) The
determined opposition of the financial services industry and the
deregulatory philosophy of senior regulatory officials combined to block
federal banking agencies from taking effective and timely action to stop
unsound nonprime lending. (106)

The inability of federal regulators to restrain nonprime lending
during the housing boom was part of a larger pattern of “regulatory
capture,” which caused federal agencies to subordinate consumer
protection and other public interests to the overriding policy goal of
increasing the profits of major financial institutions: (107) As I
pointed out in a recent article:

   [R]epeated regulatory failures during past financial crises reflect
   a 'political economy of regulation' in which regulators face
   significant political and practical challenges that undermine their
   efforts to discipline [large, complex financial institutions
   (LCFIs)].... [A]nalysts have pointed to strong evidence of
   'capture' of financial regulatory agencies by LCFIs during the two
   decades leading up to the financial crisis, due to factors such as
   (1) large political contributions made by LCFIs, (2) an
   intellectual and policy environment favoring deregulation, and (3)
   a continuous interchange of senior personnel between the largest
   financial institutions and the top echelons of the financial
   regulatory agencies. (108)

Similarly, Simon Johnson and James Kwak have observed that
“regulatory capture is most effective when regulators share the
worldview and the preferences of the industry they supervise.”
(109) They contend that “the revolving door” for officials
moving between the large financial institutions and top government
positions created a “confluence of perspectives and opinions
between Wall Street and Washington,” in which “Wall
Street’s positions became the conventional wisdom in
Washington.” (110) They further maintain that a symbiotic
relationship between financial leaders and senior regulators produced
“groupthink,” in which (i) “the federal government
deferred to the interests of Wall Street repeatedly in the 1990s and
2000s,” and (ii) any officials who disagreed with Wall Street
“were marginalized as people who simply did not understand the
bright new world of modern finance.” (111)

E. The OTS and the OCC Preempted Initiatives by the States to Stop
Predatory Lending, Thereby Aggravating the Severity of the Financial
Crisis

In contrast to the half-hearted measures taken by federal
regulators, many states passed laws and brought enforcement actions to
combat predatory lending. However, the OCC and the OTS responded to
those initiatives by preempting the states’ authority to enforce
state consumer protection laws against national banks, federal thrifts,
and their subsidiaries and agents. The preemption campaigns of the OCC
and the OTS seriously undermined the states’ efforts to protect
consumers from abusive nonprime lending practices.

1. Many States Adopted Laws and Brought Enforcement Actions to Stop
Predatory

Lending

Many states responded to growing evidence of predatory lending by
enacting anti-predatory lending (APL) laws–often called
“mini-HOEPA” laws–and by taking vigorous enforcement actions
against subprime lenders. (112) North Carolina passed the first
“mini-HOEPA” law in 1999. (113) North Carolina’s statute
covered a much broader spectrum of subprime loans than the FRB’s
rules under HOEPA. (114) North Carolina’s law prohibited prepayment
penalties for mortgage loans under $150,000, forbade patterns of
repeated refinancing known as loan “flipping,” and barred
lenders from financing single-premium credit insurance as part of the
mortgage. (115) A number of other states soon copied North
Carolina’s approach. By the end of 2007, 30 states and the District
of Columbia had adopted APL laws designed to combat various types of
mortgage lending abuses. (116)

Two recent studies determined that state APL laws were effective in
reducing the number of mortgage loans with predatory features. The first
study found that state APL laws significantly reduced the percentage of
mortgages with prepayment penalties, balloon payments, hybrid ARM terms,
interest-only ARM terms, and reduced-documentation requirements, all of
which were associated with predatory or unsound loans. (117) The second
study determined that borrowers in states with APL laws were
substantially less likely to receive mortgages with risky terms
(including prepayment penalties) and also had a significantly lower rate
of default on their loans. (118) The authors concluded that “[t]his
study provides strong evidence that state regulation of subprime
mortgages can serve as an important tool in the landscape of mortgage
market regulation and consumer protection.” (119)

In addition to passing APL laws, states launched thousands of
enforcement actions against abusive lending practices, including more
than 3600 enforcement actions in both 2003 and 2006. (120) State
enforcement efforts produced several consent orders that required
nonbank mortgage lenders to pay large penalties, including a settlement
that required Household to pay $484 million, an agreement that forced
Ameriquest to pay $325 million, a settlement that compelled First
Alliance to pay more than $50 million, and a consent order that required
Countrywide to pay $150 million and provide more than $8 billion in
mortgage modifications to borrowers. (121) However, as discussed in the
next Part, state laws and state enforcement actions were not able to
eradicate predatory lending because the OTS and the OCC preempted the
states’ ability to act against federal thrifts, national banks, and
their subsidiaries and agents.

2. The OTS and the OCC Preempted State APL Laws and State
Enforcement Efforts

In 1996, the OTS issued a regulation governing the real estate
lending activities of federal thrifts. (122) The regulation declared
that “OTS hereby occupies the entire field of lending regulation
for federal savings associations.” (123) Thus, the regulation was
designed to preempt all state laws that affected the terms and
conditions of real estate loans made by federal thrifts. (124) The OTS
issued another regulation in 1996 that gave operating subsidiaries of
federal thrifts the same preemptive immunity from state laws as the
parent thrifts enjoyed under the OTS rules. (125) The 1996 rules enabled
federal thrifts and their subsidiaries to make residential mortgage
loans without complying with state consumer protection laws. (126)

After the states began to adopt APL laws, the OTS issued a series
of orders declaring that state APL laws were preempted by OTS
regulations and, therefore, did not apply to federal thrifts and their
operating subsidiaries. For example, the OTS Chief Counsel issued four
opinion letters in 2003, declaring that OTS regulations preempted
mini-HOEPA laws passed by Georgia, New York, New Jersey, and New Mexico.
(127) In the New Mexico opinion, the OTS Chief Counsel declared that the
OTS’s regulations preempted numerous provisions of the New Mexico
statute, including New Mexico’s prohibitions against balloon
payments, negative amortization, prepayment penalties, loan flipping,
and lending without regard to the borrower’s ability to repay.
(128) The OTS also issued orders exempting agents of federal thrifts
from their duty to comply with state laws. (129) Thus, the OTS shielded
federal thrifts and their subsidiaries and agents from complying with
state APL laws.

The OCC soon joined the OTS’s efforts to bar the states from
taking any action to restrict nonprime lending by federally-chartered
depository institutions. In August 2003, the OCC issued an order
declaring that Georgia’s mini-HOEPA statute, the Georgia Fair
Lending Act (GFLA) did not apply to national banks and their operating
subsidiaries. (130) At the same time, the OCC proposed sweeping
preemption rules that would apply across-the-board to all state laws
that interfered with or placed conditions on the ability of national
banks to exercise their federally-granted powers as defined by the OCC.
(131) In January 2004, the OCC adopted the proposed blanket preemption
rules, which were substantially identical to the OTS’s 1996
regulations. (132) Like the OTS’s regulations, the OCC’s 2004
preemptive rules shielded both national banks and their operating
subsidiaries from the application of most state consumer protection
laws. (133)

Also in January 2004, the OCC adopted a separate but related
preemption rule. That rule preempted the authority of the states to
bring any type of enforcement action (whether administrative or
judicial) against national banks, even with respect to state laws that
the OCC did not preempt. (134) In combination, the OCC’s 2004
rules: (i) exempted national banks from compliance with most state
consumer protection laws, and (ii) prevented the states from enforcing
other state laws that still applied to national banks. (135) In May
2004, the OCC took a further step and declared that the GFLA’s
regulation of mortgage brokers was preempted with respect to any brokers
who arranged loans that were funded at closing by national banks or
their subsidiaries. (136) That ruling effectively canceled the
states’ ability to regulate mortgage brokers who worked with
national banks or their subsidiaries.

In addition to issuing its preemption rules, the OCC supported
lawsuits brought by national banks to preempt state laws and state
enforcement actions. (137) For example, during protracted litigation
over the issue of whether national banks could charge late payment fees
on credit card loans extended to residents of other states, the OCC
issued a regulation in 1996 that authorized national banks to disregard
conflicting state usury laws. (138) The Court granted deference to the
OCC’s regulation, (139) while noting that (i) the regulation was
“prompted by litigation, including this very suit,” (140) and
(ii) the OCC also “participated as an amicus curiae on the side of
the banks.” (141) During oral argument, Chief Justice Rehnquist
provoked laughter in the courtroom when he remarked to counsel for the
United States that “I’ve been on the Court 23 or 24 years and
heard a number of these cases. And I’ve never heard of a case in
which the [OCC] ruled against the banks.” (142)

Subsequently, the OCC issued opinion letters and filed amicus
briefs in support of three large national banks–Wachovia, Wells Fargo,
and National City–that filed lawsuits to preempt efforts by several
states to regulate the mortgage lending subsidiaries of national banks.
(143) Those lawsuits produced court decisions upholding preemption of
the challenged state laws. (144) However, as discussed below, Wachovia
and National City subsequently suffered heavy losses from their nonprime
lending activities and both institutions ultimately agreed to sell
themselves to other banks in federally-assisted transactions in order to
avoid failure. (145)

In June 2005, the OCC joined with the Clearing House Association
(an association of the largest national banks) in filing lawsuits to
prevent New York Attorney General Eliot Spitzer from investigating
national banks for alleged violations of New York’s fair lending
statute. (146) The OCC conceded that New York’s antidiscrimination
law applied to national banks, but the OCC claimed sole and exclusive
authority to decide whether that law should be enforced against national
banks. (147 ) With the OCC’s support, the national banks persuaded
a federal district court to enjoin Mr. Spitzer’s investigation and
that injunction was not lifted until the U.S. Supreme Court reversed the
lower court’s decision in June 2009. (148) Once again, the
OCC’s preemptive actions frustrated a state’s efforts to
protect its citizens from abusive lending practices.

A 2008 investigative report by two journalists concluded that the
OCC’s preemptive measures contributed to the severity of the
financial crisis by “stifling … prescient state enforcers and
legislators” who tried to prevent irresponsible lending. (149)
Another journalist similarly observed:

   For more than a decade, the O.C.C. has beaten back state attorney
   generals who have tried to enforce state consumer laws against
   national banks, arguing that federal laws pre-empt those of the
   states: the O.C.C. has stopped Georgia from enforcing predatory
   lending laws, intervened in New York's effort to investigate
   discriminatory lending and opposed a campaign by New England states
   to curb gift card fees.

   ...

   CRITICS maintain that the O.C.C's campaign against the states
   weakened crucial consumer protections and ultimately exacerbated
   the impact of the financial crisis. (150)

In written testimony presented to the FCIC in January 2010,
Illinois Attorney General Lisa Madigan maintained that “[s]tate
enforcement efforts have been progressively hamstrung by the dual forces
of federal preemption and a lack of oversight at the federal
level.” (151) Attorney General Madigan contended that OCC and OTS
preemption had three adverse effects on the states’ ability to
enact and enforce consumer protection laws. First, “when state
attorneys general come upon lending abuses by federally chartered
lenders, we first have to determine whether we can afford to expend our
limited resources fighting a protracted preemption battle.” (152)
Second, “most of the remaining mortgage lenders are now sheltering
under the protections of federal charters.” (153) For example,
Attorney General Madigan pointed out that Countrywide moved all of its
mortgage lending operations into its federal thrift subsidiary in 2007
in order to obtain the protection of federal preemption against future
state investigations and enforcement proceedings. (154) Third, federal
preemption made it more difficult for states to enact protective
legislation, because “[w]hen we introduced legislation, mortgage
brokers and other state licensees were quick to respond with the
‘level playing field’ argument, demanding that they should be
subject to the same lax standards as federal charters.” (155)

The preemptive actions of the OCC and OTS prevented state officials
from responding to predatory lending problems with the same
effectiveness they displayed in exposing a series of scandals on Wall
Street between 2002 and 2006. During those years, state authorities took
the lead in prosecuting securities firms (including securities
affiliates of major banks) for (i) pressuring their research analysts to
produce biased reports to investors, (ii) engaging in corrupt practices
related to initial public offerings, and (iii) permitting hedge funds to
carry out abusive market timing and late trading strategies that
exploited mutual funds sponsored by securities firms. (156) After
initial resistance, the Securities and Exchange Commission (SEC)
eventually cooperated with the states’ enforcement measures against
Wall Street firms. (157) In contrast, as shown above, the determined
preemption campaigns of the OTS and the OCC frustrated the efforts of
the states to combat abusive nonprime lending. (158)

3. The Industry-Based Funding for the OTS and OCC Created a
Conflict of Interest Between Their Supervisory Duties and Their
Budgetary Concerns

The preemption initiatives of the OTS and the OCC served the
financial self-interest of both agencies. (159) The budgets of the OCC
and the OTS were funded almost entirely by assessments paid by national
banks and federal thrifts. (160) Both agencies therefore had powerful
budgetary incentives to persuade depository institutions to operate
under national bank and federal thrift charters. (161)

During the period leading up to the financial crisis, the OTS and
the OCC actively competed for chartering rights with state officials who
regulated state-chartered banks and state-chartered thrifts. (162) In a
newspaper interview in 2002, Comptroller of the Currency John D. Hawke,
Jr. acknowledged that “the potential loss of regulatory market
share [to the state banking system] ‘was a matter of concern to
us.'” (163) Similarly, in 2007 OTS Director John Reich
described Washington Mutual, the largest thrift institution, as “my
largest constituent” in an email message. (164)

Preemption “gave the OCC and OTS a powerful extra lure to
entice lenders to their charters, in the form of relief from state
anti-predatory lending laws.” (165) The OTS’s sweeping
preemption rules, along with its nationwide branching regulations,
persuaded most state-chartered thrifts to convert to federal charters
between 1975 and 2003. (166) Similarly, the OCC’s preemption
initiatives were intended to induce large, multistate banks to convert
from state charters to national bank charters. (167) In a 2002 speech,
Comptroller Hawke declared that “national banks’ immunity from
state law is a significant benefit of the national charter–a benefit
that the OCC has fought hard over the years to preserve.” (168) He
further claimed that “[t]he ability of national banks to conduct a
multistate business subject to a single, uniform set of federal laws,
under the supervision of a single regulator, free from visitorial powers
of various state authorities, is a major advantage of the national
charter.” (169)

The OCC’s subsequent issuance of broad preemption rules in
2004 had the desired effect. By 2005, three major banks with more than
$1 trillion of assets had converted from state charters to national
charters to take advantage of the OCC’s rules. (170) Those
conversions provided a significant financial benefit to the OCC, as they
produced a 15% increase in the OCC’s annual budget. (171) The OTS
and OCC preemption rules continued to encourage state thrift and state
banks to convert to federal charters until the outbreak of the financial
crisis in 2007. (172)

4. OTS and OCC Preemption Helped Federal Thrifts and National Banks
to Establish Leading Positions as Subprime and Alt-A Mortgage Lenders

OTS preemption helped federal thrifts to establish a major presence
in the subprime and Alt-A mortgage markets during the late 1990s and
early 2000s. In 1999, Washington Mutual (WaMu), the largest federal
thrift, acquired Long Beach, a major subprime lender. (173) Two other
large federal thrifts, IndyMac and Downey Federal, also rapidly expanded
their nonprime lending operations. (174) In addition, three major
securities firms–Merrill Lynch, Lehman Brothers, and Morgan
Stanley–each acquired a federal thrift, (175) as did AIG, a big
insurance company, (176) and H&R Block, a large tax preparation
firm. (177) All eight of the foregoing companies were subject to OTS
regulation due to their status as federal thrifts or owners of federal
thrifts. (178) The OTS exercised primary supervision over federal
thrifts, and the OTS also exercised consolidated supervision over all
holding companies that owned federal thrifts, including financial
conglomerates whose principal subsidiaries were securities
broker-dealers or insurance companies. (179)

Similarly, large national banks expanded aggressively into subprime
and Alt-A lending and took full advantage of the preemptive shield
offered by the OCC. Citigroup acquired Associates First Capital in 2000
and purchased Argent (an affiliate of Ameriquest) in 2007. (180)
Similarly, National City, a leading Midwestern bank, bought First
Franklin in 1999, while Chase purchased Advanta in 2001, and HSBC
acquired Household in 2002. (181) In addition, Countrywide, the largest
mortgage lender, acquired a national bank in 2001 and operated as a bank
holding company until it converted its bank charter to a federal thrift
charter in early 20 07. (182) In several instances, nonbank subprime
lenders sold themselves to national banks or federal thrifts, after they
were sued by state regulators, in order to obtain the immunity from
state regulation offered by the OCC’s or OTS’s preemptive
shield. (183)

The Center for Public Integrity (CPI) published a study in May
2009, which compiled a list of the top 25 subprime lenders from 2005
through 2007. (184) CPI’s data showed that the top 25 subprime
lenders and their affiliates accounted for 72% of all subprime loans
made between 2005 and 2007. (185)

According to CPI’s study, at the peak of the subprime lending
boom between 2005 and 2007, the following 6 companies that owned federal
thrifts ranked among the top 20 subprime lenders in the nation: Merrill
Lynch, WaMu, H&R Block, Lehman Brothers, IndyMac, and AIG. (186) In
addition, Countrywide, the nation’s largest subprime lender,
switched the charter of its subsidiary depository institution from a
national bank to a federal thrift in early 2007. (187)

Several major national banks were also affiliated with leading
subprime lenders. According to CPI’s study, during the peak of the
subprime lending boom from 2005 to 2007, 7 of the nation’s top 20
subprime lenders–Countrywide (until early 2007), National City, Wells
Fargo, HSBC, JP Morgan Chase, Citigroup, and Wachovia–were companies
that owned national banks. (188)

In sum, CPI’s study showed that 12 of the 20 largest subprime
lenders from 2005 to 2007 were companies that owned either national
banks or federal thrifts. (189) During the same period, those 12 lenders
accounted for almost 60% of the subprime loans made by the top 25
subprime lenders and for more than 40% of the subprime loans made by all
subprime lenders. (190) A second study, prepared by the National
Consumer Law Center (NCLC), found that national banks, federal thrifts,
and their operating subsidiaries originated 31.5% of all subprime
mortgages, 40.1% of all Alt-A mortgages, and 51% of all payment-option
and interest-only ARMs in 2006, the high point of the housing boom.
(191) Thus, national banks, federal thrifts, and their affiliates were
responsible for a large share of the nonprime lending that occurred
during the housing boom.

5. The OTS, the OCC, and the FRB Failed to Prevent the Failures of
Several Major Financial Institutions That Were Heavily Engaged in
Originating and Securitizing Nonprime Mortgages

The failures and government bailouts of several major companies
that owned national banks or federal thrifts revealed (i) the deep
involvement of large federal thrifts and national banks in the
origination and securitization of nonprime mortgages, and (ii) serious
regulatory failures by the OTS, the OCC and the FRB. The OTS committed
numerous regulatory lapses, and Congress ultimately decided, in enacting
Dodd-Frank, to abolish the OTS and transfer its functions to other
federal regulators. (192) The OTS’s regulatory failures contributed
to (A) the failures of IndyMac, Lehman Brothers, and WaMu, (B) the
collapse of AIG, which triggered a massive federal bailout, and (C) the
near-failure of Merrill Lynch, which resulted in an emergency takeover
by Bank of America–a transaction that in turn inflicted major losses on
Bank of America and forced that bank to obtain extraordinary assistance
from the federal government. (193)

The OCC, the FRB, and the OTS bore joint responsibility for the
near-failure of Countrywide, which sold itself in an emergency deal to
Bank of America and subsequently inflicted additional losses on its
acquirer. (194) The FRB and the OCC were also cited for failures of
regulatory oversight that led to (i) the near-failure and costly federal
bailout of Citigroup, (ii) the failure and forced sale of Wachovia to
Wells Fargo in a federally-assisted transaction, and (iii) the
near-collapse and forced sale of National City to PNC in another
federally-assisted deal. (195) The failures and governmentally-assisted
rescues of the foregoing institutions made it “painfully
obvious” that federally-supervised thrifts and banks “were
deeply implicated in the origination and securitization of bad mortgage
loans, whether through the banks themselves or their nonbank
affiliates.” (196)

A recent study by Kathleen Engel and Patricia McCoy concluded that
federal preemption contributed to unsound lending and higher rates of
mortgage defaults among federally-chartered depository institutions.
(197) Their study analyzed delinquency rates on residential mortgage
loans made by four categories of depository institutions between 2006
and 2008. (198) The authors found that loans made by federal thrifts had
the highest delinquency rate, while loans made by national banks had the
second highest delinquency rate. (199) In contrast, loans made by
state-chartered thrifts and state-chartered banks–which were not
protected by federal preemption–had substantially lower delinquency
rates (with state banks recording the lowest rates). (200) The authors
concluded: “Thus, at least when we compare depository institutions,
federal preemption was associated with higher default rates, not lower
ones, from 2006 through 2008. Those were the years when loan
underwriting was at its worst and the credit markets experienced a
meltdown.” (201)

III. TITLE X OF DODD-FRANK GRANTS SUPPLEMENTAL LAWMAKING AND LAW
ENFORCEMENT POWERS TO THE STATES AND IMPOSES SIGNIFICANT RESTRICTIONS ON
THE OCC’S AUTHORITY TO PREEMPT STATE LAWS

Congress designated Title X of Dodd-Frank as the “Consumer
Financial Protection Act of 2010” (CFP Act). (202) As described in
Part III.A, Title X authorizes CFPB to issue regulations and to bring
enforcement actions to protect consumers of financial services. However,
Title X does not give CFPB exclusive authority over the field of
consumer financial protection. Instead, as discussed in Parts III.B and
III.C, the CFP Act empowers the states to provide supplemental
safeguards to consumers through both lawmaking and law enforcement
activities. Moreover, as explained in Part III.D, Title X imposes
significant limitations on the OCC’s ability to preempt the
application of state consumer financial laws to national banks and
federal thrifts.

A. Title X Establishes a Federal “Floor” of Protection
for Consumers of Financial Services

Title X of Dodd-Frank establishes CFPB as an “independent
bureau” within the Fed and assigns to CFPB the mission of
“regulat[ing] the offering and provision of consumer financial
services under the Federal consumer financial laws.” (203) CFPB is
responsible for implementing and enforcing “federal consumer
financial laws,” which include “nearly every existing federal
consumer financial statute, as well as new consumer financial protection
mandates prescribed by the [CFP] Act.” (204) Title X protects the
independence of the CFPB by (i) prohibiting the Fed from interfering
with CFPB’s policymaking and enforcement functions, (205) and (ii)
requiring the Fed to provide approximately $500 million each year to
fund CFPB’s operations. (206)

The Director of CFPB is appointed by the President for a five-year
term, with the Senate’s advice and consent, and is removable only
for good cause. (207) Title X authorizes the Director to issue rules,
orders, and provide guidance “to administer and carry out the
purposes and objectives of the Federal consumer financial laws, and to
prevent evasions thereof.” (208) In particular, the Director may
issue rules and bring enforcement proceedings to prevent persons subject
to Title X from engaging in “unfair, deceptive, or abusive acts or
practices (UDAAP) in connection with consumer financial products or
services.” (209) The Director may also issue regulations to ensure
that “the features of any consumer financial product or service …
are fully, accurately, and, effectively disclosed to consumers in a
manner that permits consumers to understand the costs, benefits, and
risks associated with the product or service.” (210) CFPB’s
regulations are subject to potential override by the Financial Stability
Oversight Council (FSOC) if the FSOC determines that any CFPB regulation
threatens the safety and soundness of the U.S. banking system or the
stability of the U.S. financial system. (211) In addition to the
prohibitions created by CFPB’s rules, Section 1036 of Dodd-Frank
imposes a general statutory ban on the use of UDAAP by covered providers
of financial products or services. (212)

Title X authorizes CFPB to examine depository institutions with
total assets of more than $10 billion (as well as their affiliates) and
all nondepository providers of consumer financial services to determine
their compliance with consumer financial protection laws. (213) Title X
also enables CFPB to take a variety of actions to stop violations of (i)
the CFP Act and the CFPB’s regulations thereunder (including
statutory and regulatory prohibitions against UDAAP), or (ii) any of the
18 federal consumer financial laws enumerated in Section 1002(12) of
Dodd-Frank. (214) CFPB’s powers to prevent violations of such laws
include (i) undertaking investigations and performing administrative
discovery, (ii) initiating administrative enforcement proceedings
(including actions for cease-and-desist orders), (iii) filing judicial
enforcement actions, and (iv) making referrals of criminal charges to
the Department of Justice. (215) The CFPB may use administrative or
judicial enforcement proceedings to obtain a wide range of legal and
equitable remedies, including refunds, restitution, damages, civil money
penalties and injunctive relief. (216)

Thus, Title X vests CFPB with broadly-defined powers to regulate
providers of consumer financial products and services. (217) However,
Title X does not authorize CFPB to regulate persons engaged in
insurance, securities or commodity trading activities. In addition,
sellers of nonfinancial goods and manufactured homes, real estate
brokers, auto dealers, attorneys, accountants, and tax preparers are
exempted from the CFPB’s jurisdiction unless they are significantly
engaged in offering covered financial products or services. (218)

B. Title X Empowers the States to Adopt Laws Providing Additional
Protection to Consumers of Financial Services

Notwithstanding the broad powers granted to the CFPB, Title X does
not give the federal government exclusive control over consumer
financial protection. Instead, Title X authorizes the states to provide
supplemental safeguards to consumers through both lawmaking (as
described in this Part) and law enforcement (as discussed in the next
Part). Section 1041(a)(1) provides that the CFP Act does not preempt
state law “except to the extent that a state law is inconsistent
with the provisions of [the CFP Act] and then only to the extent of the
inconsistency.” (219) Section 1041(a)(2) explains that a state law
is “not inconsistent” with the CFP Act–and therefore is not
preempted–if the state law provides “greater” protection to
consumers than the protection provided by the CFP Act. (220) CPFB may
determine whether any state law is preempted due to inconsistency with
the CFP Act either “on its own motion or in response to a
nonfrivolous petition initiated by any interested person.” (221)

The general anti-preemption language contained in Section 1041 of
Dodd-Frank does not determine the question of whether state laws are
subject to preemption under either the National Bank Act (NBA) (222) or
the Home Owners’ Loan Act (HOLA). (223) Sections 1043-1048 of
Dodd-Frank govern preemption issues under those two statutes. (224) As
shown below in Part III.D, Dodd-Frank significantly limits the
OCC’s authority to preempt the application of state consumer
financial laws to national banks and federal thrifts.

As explained above, the CFP Act preempts state laws only when they
provide less protection than the CFP Act and the CFPB’s
regulations. (225) Consequently, the CFP Act establishes a
“floor” and not a “ceiling” for consumer financial
protection. (226) The limited scope of preemption under the CFP Act is
consistent with the “floor” preemption established by most
federal laws that protect consumers of financial products, including the
Equal Credit Opportunity Act (ECOA), the Electronic Funds Transfer Act
(EFTA), the Fair Debt Collection Practices Act (FDCPA), and the Truth in
Lending Act (TILA). (227) In this regard, the Senate committee report on
Dodd-Frank explained that “Federal consumer financial laws have
historically established only minimum standards [of consumer protection]
and have not precluded the States from enacting more protective
standards. [The CFP Act] maintains that status quo.” (228)

By giving the states a supplemental lawmaking role with regard to
consumer financial protection, Dodd-Frank encourages CFPB and the states
to work together with the goal of providing optimal protection to
consumers. To advance that goal, section 1041(c) requires CFPB to
conduct a rulemaking proceeding whenever a majority of the states have
adopted a resolution recommending that CFPB should establish or modify a
consumer protection regulation. (229) As noted in the Senate report,
Section 1041(c) will enhance the states’ ability to persuade CFPB
to “adjust [federal consumer protection] standards over time.”
(230)

C. Title XEnables State Attorneys General to Enforce the CFP Act
and the CFPB’s Regulations

Section 1042 of Dodd-Frank authorizes state attorneys general (AGs)
to enforce the CFP Act or CFPB’s regulations by filing actions in
federal or state courts to secure civil remedies under the CFP Act or
under other applicable federal or state laws. (231) Section 1042 also
permits state AGs to enforce the CFP Act or CFPB’s regulations by
bringing administrative enforcement proceedings against “any entity
that is State-chartered, incorporated, licensed, or authorized to do
business under State law.” (232) However, state AGs may not bring
administrative enforcement proceedings against national banks or federal
thrifts. (233) State AGs may only file judicial enforcement actions
against national banks or federal thrifts under the CFP Act, and such
actions must be based on alleged violations of CFPB regulations. (234)
Thus, a state AG may not sue a national bank or federal thrift to
enforce any statutory provision of the CFP Act (unless that statutory
provision has been expressly incorporated in a CPFB regulation).

As a practical matter, the forgoing limitation means that state AGs
are authorized to enforce only CFPB’s interpretations of the CFP
Act (as embodied in CFPB regulations) against national banks or federal
thrifts and only by filing lawsuits. For example, state AGs may not
enforce Section 1036’s general statutory ban on UDAAP against
national banks or federal thrifts. (235) In contrast, state AGs may
enforce the statutory provisions of the CFP Act, including the
“generic UDAAP ban,” against state-chartered or state-licensed
entities through either administrative or judicial enforcement
proceedings. (236)

Section 1042(b)(1) requires a state AG to give CFPB a copy of each
complaint that the AG has filed in any administrative or judicial
proceeding to enforce the CFP Act or CFPB’s regulations. (237) Upon
receiving the AG’s complaint, CFPB may intervene as a party in the
proceeding, may remove any state court action to federal district court,
and may appeal any order or judgment to the same extent as any other
party in the proceeding. (238) Section 1042(b) ensures that CFPB will
have the right to participate in all enforcement proceedings brought by
state AGs under the CFP Act or CFPB’s regulations.

State AGs have authority under certain state and federal laws to
enforce the CFP Act and CFPB’s rules against certain classes of
persons who are not subject to CFPB’s enforcement jurisdiction.
(239) For example, state AGs could potentially “use CFPB rules as a
basis for arguing that a merchant, retailer or seller has violated [a]
state law ban on unfair or deceptive practices.” (240) In addition,
Section 1042(d) of Dodd-Frank stipulates that the CFP Act may not be
construed to limit (i) the authority of a state AG or other responsible
state official to initiate any enforcement action or other regulatory
proceeding based “solely” on the law of that state, or (ii)
the authority of state insurance or securities officials or agencies to
take enforcement or other regulatory actions authorized by state
securities laws or state insurance laws. (241) Thus, the CFP Act does
not impair the enforcement powers granted to state AGs or state
securities or insurance officials by valid state laws.

D. Dodd-Frank Limits the Preemptive Authority of the OCC with
Respect to National Banks and Federal Thrifts

Title X of Dodd-Frank establishes new preemption standards under
the NBA and HOLA. As shown below, the new standards impose significant
limitations on the OCC’s authority to preempt the application of
state consumer financial laws to national banks and federal thrifts. The
new standards also require the OCC to make major changes in the
preemption rules that were issued by the OTS and the OCC between 1996
and 2004. (242) The new standards do not address the applicability of
general state laws to national banks and federal thrifts. However, I
argue below that Title X’s silence with regard to general state
laws should be construed to support the presumptive applicability of
such laws to national banks and federal thrifts. (243)

1. Dodd-Frank Establishes New Preemption Standards That Govern the
Application of State Consumer Financial Laws to National Banks and
Federal Thrifts

Sections 1044 through 1047 of Dodd-Frank, which take effect on July
21, 2011, adopt new preemption standards that govern the applicability
of state consumer financial laws to national banks and federal thrifts.
(244) The revised national bank preemption rules are contained in a new
section (Section 5136C) of the NBA, (245) while the altered thrift
standards are set forth in a new provision (Section 6) of HOLA. (246)
The new preemption standards for federal thrifts are equivalent to those
for national banks. (247)

Dodd-Frank’s revised preemption standards apply to “state
consumer financial laws,” which include state laws that (i) do not
“directly or indirectly discriminate” against
federally-chartered depository institutions, and (ii) “directly and
specifically” regulate financial transactions involving consumers
or their related accounts. (248) For example, a state law that regulates
the specific terms and conditions of a consumer loan (e.g., by
prohibiting or limiting certain types of fees or amortization terms)
should be treated as a state consumer financial law. In contrast, state
laws that establish general requirements, standards, or prohibitions
with respect to the conduct of business by both financial and
nonfinancial firms–e.g., state laws prohibiting fraudulent or deceptive
practices or unconscionable contracts–should not be treated as state
consumer financial laws for purposes of Section 5136C of the NBA and
Section 6 of HOLA. The statutory distinction in Dodd-Frank between state
laws that “directly and specifically” regulate the terms and
conditions of consumer financial transactions and other state laws that
apply generally to a broad range of business conduct is consistent with
a series of recent cases decided under both HOLA and the NBA. Those
decisions have held that state laws of general applicability are less
likely to create conflicts with either HOLA or the NBA and, therefore,
are less likely to be preempted. (249)

2. Dodd-Frank’s New Standards Significantly Limit the
OCC’s Authority to Preempt State Consumer Financial Laws

As shown below, Dodd-Frank’s new preemption standards impose
several important limitations on the OCC’s authority to preempt
state consumer financial laws. First, Dodd-Frank requires the OCC to
apply conflict preemption principles and, in most cases, to justify each
preemption determination by showing that a state consumer financial law
prevents or significantly interferes with a national bank’s
exercise of its federally-granted powers. Second, Dodd-Frank requires
the OCC to make preemption determinations on a case-by-case basis and to
show that each determination is supported by substantial evidence.
Third, the OCC is entitled to receive only limited deference if its
preemption determination is reviewed by a court.

a. Under Dodd-Frank, the OCC May Preempt a State Consumer Financial
Law Only If That Law Prevents or Significantly Interferes With a
National Bank’s Exercise of Its Powers

Paragraph (b)(1) of Section 5136C establishes three new tests for
determining whether the NBA preempts a state consumer financial law.
(250) Under paragraph (b)(1), “State consumer financial laws are
preempted, only if” (A) application of the state law has a
“discriminatory effect on national banks” in comparison with
state banks; (B) if the state law is preempted under the “legal
standard for preemption” set forth in Barnett Bank of Marion
County, N.A. v. Nelson, (251) as discussed below; (252) or (C) if the
state law is preempted by a federal law other than a statute defining
the powers of national banks. (253) The first preemption test of
nondiscrimination is straightforward and should not require great
difficulty in application. If a state law discriminates against national
banks either on its face or in its practical application, it will be
preempted. (254)

The second preemption test, set forth in subparagraph (b)(1)(B),
provides that a “state consumer financial law” will be
preempted “in accordance with the legal standard for preemption in
the decision of the Supreme Court … in Barnett Bank of Marion County,
N.A. v. Nelson … 517 U.S. 25 (1996),” (255) if the particular
state law “prevents or significantly interferes with the exercise
by the national bank of its powers.” (256) Thus, subparagraph
(b)(1)(B) expressly adopts the “prevent or significantly interferes
with” test in Barnett Bank as the governing standard for
determining whether state consumer financial laws apply to national
banks. (257) In addition, the relevant inquiry under Barnett Bank is to
determine whether a challenged state law actually “prevents or
significantly interferes with” the “exercise” of
“powers” by a national bank. (258)

In Section 104(d)(2)(A) of the Gramm-Leach-Bliley Act, (259)
enacted in 1999, Congress incorporated the “prevent or
significantly interfere with” standard of Barnett Bank as the
governing rule for determining whether state laws regulating sales of
insurance by depository institutions are preempted by federal law. (260)
Thus, Congress expressed its clear understanding in 1999 that the
applicable preemption standard under Barnett Bank is the “prevent
or significantly interfere with” test. (261) Similarly, the
conference committee report and the Senate committee report on
Dodd-Frank confirm that Congress once again specifically endorsed the
“prevent or significantly interferes with” standard of Barnett
Bank as the controlling rule for determining whether state consumer
financial laws are preempted under Section 5136C(b)(1)(B). (262)

The Supreme Court has not precisely defined the degree of
interference that is required to invalidate a state law under the
“significantly interferes with” standard set forth in Barnett
Bank. A recent appellate court opinion concluded that “the level of
‘interference’ that gives rise to preemption under [Barnett
Bank] is not very high.” (263) However, as shown below, there are
good reasons to believe that the Supreme Court would view that question
differently, given the Court’s discussion of preemption in Barnett
Bank and its interpretation of the meaning of the term
“significant” in other federal statutes.

In Barnett Bank, the Court struck down a Florida statute, which
prohibited national banks that were subsidiaries of BHCs from exercising
a power granted by Congress (namely, the right to sell insurance in
towns with 5000 or fewer inhabitants). (264) The Court held that Florida
could not “condition” a congressional grant of federal power
by requiring “a grant of state permission” to exercise that
power. (265) Thus, the Florida law ran afoul of the “prevent”
prong of the Barnett Bank standard because it prohibited most national
banks from exercising an express power granted by Congress in a federal
statute. (266)

The Court in Barnett Bank also pointed to the state law that it
found to be preempted in Franklin National Bank v. New York. (267) In
Franklin, a New York statute prohibited national banks and state
commercial banks from using the word “savings” in advertising
for deposits and reserved that advertising privilege solely for state
savings banks. (268) The Court pointed out in Franklin that a provision
of the Federal Reserve Act specifically authorized national banks to
accept savings deposits, while the NBA also granted a general power to
accept deposits. (269) The Court made clear in Franklin that it viewed
New York’s prohibition on advertising for savings deposits as a
very prejudicial interference with the federally-granted power of
national banks to accept savings deposits:

   Modern competition for business finds advertising one of the most
   usual and useful of weapons. We cannot believe that the incidental
   powers granted to national banks should be construed so narrowly as
   to preclude the use of advertising in any branch of their
   authorized business. It would require some
   affirmative indication to justify an interpretation that would
   permit a national bank to engage in a business but gave no right to
   let the public know about it.

   ... [National banks] do accept and pay interest on time deposits of
   people's savings, and they must be deemed to have the right to
   advertise that fact by using the commonly understood description
   that Congress has specifically selected. (270)

The Court’s analysis of the preempted New York statute in
Franklin suggests that a state law must create a substantial impediment
to the exercise of a national bank power before the state law will be
preempted under the “significantly interferes with” prong of
the Barnett Bank standard. This view finds further support, at least by
analogy, in Supreme Court decisions construing Sections 10(b) and 14(a)
of the Securities Exchange Act of 1934 (1934 Act). (271) In those
decisions, the Supreme Court indicated that the terms
“significantly” and “materially” are essentially
synonyms, and the Court also held that a “material” fact is
one that a “reasonable investor” would be likely to view as
“important.” (272)

The Court expressed a similar view of the connotation of the word
“significant” in a decision that considered the duty of a
federal agency to prepare an environmental impact statement (EIS) under
the National Environmental Policy Act (NEPA) for a proposed course of
action that had “significant environmental impacts.” (273) In
explaining why NEPA requires the filing of an EIS for a proposal with
“significant” environmental consequences, the Court observed
that “NEPA ensures that important effects will not be overlooked or
underestimated only to be discovered later after resources have been
committed or the die otherwise cast.” (274) Accordingly, in order
to conclude a state law “significantly interferes with” a
national bank’s exercise of its powers, and is thereby preempted
under Section 5136C(b)(1)(B), I believe that the courts or the OCC must
find that the challenged state law has an important (i.e., substantial)
and adverse impact on the bank’s ability to exercise those powers.

An additional interpretive question is raised by the third test in
Section 5136C(b)(1)(C), which provides that a State consumer financial
law can be preempted by “a provision of Federal law other than this
title.” (275) In my view, a federal law is covered by the third
test only if it is a law of general application–e.g., a federal
criminal law, employment law or tax law–that does not grant a power to
national banks, and the preemptive effect of those general laws should
be determined in accordance with the particular provisions of those
laws. In contrast, a federal statute or regulation granting any type of
power to national banks should be subject to the Barnett Bank preemption
standard described above, not the third test.

Barnett Bank dealt with a provision of the Federal Reserve Act that
granted a power to national banks, (276) and the same was true in
Franklin. (277) Similarly, the new preemption standards in Section 5136C
refer in several places to Section 24 of the Federal Reserve Act, (278)
which authorizes national banks to make real estate loans. Congress
identified the failure of federal regulators to stop abusive and unsound
real estate lending as a leading cause of the financial crisis. (279)
The preemptive mortgage lending regulations issued by the OCC and the
OTS were singled out for special criticism because they undermined
efforts by many states to combat predatory lending. (280) Because
Section 5136C(b)(1)(B) specifically incorporates the Barnett Bank
preemption standard, that statute should be interpreted as embodying the
holding in Barnett Bank that the “prevent or significantly
interferes with” standard is the governing test to be applied
“[i]n defining the pre-emptive scope of statutes and regulations
granting a power to national banks.” (281) Accordingly, the Barnett
Bank standard in Section 5136C(b)(1)(B) should be applied in any case
that involves an alleged conflict between a state consumer financial law
and a federal law that grants any “power” to a national bank,
whether that federal law is codified in the NBA or in another federal
statute such as the Federal Reserve Act. (282)

b. Dodd-Frank Requires the OCC to Act on a Case-by-Case Basis, to
Show Substantial Evidence for Its Preemptive Determinations, and to
Publish and Review Its Determinations Periodically

Section 5136C(b)(1)(B) of Dodd-Frank requires the OCC to make any
“preemption determination … by regulation or order.” (283)
Thus, the OCC must issue each determination that federal law preempts a
state consumer financial law in the form of a regulation or order, and
the OCC may not make any preemption determination by issuing an opinion
letter, court brief or informal guidance. This requirement should
increase the formality and visibility to the public of OCC preemption
determinations. (284)

In addition, the OCC must determine “on a case-by-case
basis” whether particular state consumer financial laws are subject
to preemption by federal law. (285) The “case-by-case”
requirement means that a preemption determination by the OCC will
override only the particular state consumer financial law under
consideration and other state laws that have “substantively
equivalent terms.” (286) Moreover, the OCC must consult with CFPB,
and must take CFPB’s views into account, in determining whether
other state consumer financial laws have “substantively equivalent
terms” to the particular law that the OCC is preempting. (287) The
requirement for a “case-by-case” determination plainly bars
the OCC from adopting blanket rules that preempt broad classes or
categories of state law.

Section 5136C(c) provides that an OCC preemption determination will
not be given preemptive effect “unless substantial evidence, made
on the record of the proceeding, supports the specific finding regarding
the preemption of [the State consumer financial law] in accordance with
the decision of the Supreme Court … in [Barnett Bank]'”
(288) Section 5136C(g) requires the OCC to publish, and update at least
quarterly, a list of all OCC preemption determinations in effect. The
required list must identify “the activities and practices covered
by each determination and the requirements and constraints determined to
be preempted.” (289)

Section 5136C(d) requires the OCC to conduct a review every five
years, “through notice and public comment, of each determination
that a provision of Federal law preempts a State consumer financial
law.” (290) After completing each quinquennial review, the OCC must
either (i) publicly announce its decision to maintain or rescind each
existing preemption determination, or (ii) publish proposals to modify
particular preemption determinations. (291) Each proposal to amend a
preemption determination must comply with the notice-and-comment
procedures set forth in 12 U.S.C. [section] 43. (292) In addition, the
OCC must submit a report of each quinquennial review of preemption
determinations to the House and Senate committees responsible for
banking matters. (293) The quinquennial review process will facilitate a
periodic public and congressional evaluation of the OCC’s
preemption determinations.

c. Dodd-Frank Confirms that the NBA Is Governed by Conflict
Preemption Rules, and that OCC Preemption Determinations Are Not
Entitled to Chevron Deference

Section 5136C(b)(4) declares that the NBA “does not occupy the
field in any area of State law.” (294) Thus, Dodd-Frank affirms
that conflict preemption principles, instead of field preemption
principles, govern NBA preemption issues. That affirmation is consistent
with Barnett Bank, which held that conflict preemption rules govern the
determination of whether a state law is preempted by the NBA. (295)

Under Section 5136C(b)(5)(A), courts reviewing preemption
determinations by the OCC must “assess the validity of such
determinations, depending upon the thoroughness evident in the
consideration of the agency, the validity of the reasoning of the
agency, the consistency with other valid determinations made by the
agency, and other factors which the court finds persuasive and relevant
to its decision.” (296) This standard for judicial review of OCC
preemption determinations is essentially the same as Skidmore deference,
which was defined by the Supreme Court in Skidmore v. Swift & Co.
(297) Under Skidmore deference, an agency’s ruling “is
eligible to claim respect according to its persuasiveness.” (298)
The weight to be given by a court to the agency’s ruling under
Skidmore depends on “all those factors which give it power to
persuade, if lacking power to control.” (299) In contrast, the much
stronger principle of Chevron deference, established in Chevron U.S.A.,
Inc. v. Natural Resources Defense Council, Inc., (300) requires a
reviewing court “to accept the agency’s position if Congress
has not previously spoken to the point at issue and the agency’s
interpretation is reasonable.” (301)

Section 5136C(b)(5)(A) is one of the most important provisions of
Dodd-Frank from the perspective of the states because it ensures that
reviewing courts will evaluate the OCC’s preemption determinations
without giving strong deference to the OCC’s interpretations of the
NBA. Skidmore deference will not allow the OCC to claim that each
alleged instance of statutory silence or ambiguity in the NBA creates a
legislative “gap” that the OCC has authority to fill by
issuing preemptive rulings that displace state law. Unlike Chevron,
Skidmore’s more demanding standard of review will compel the OCC to
bear the burden of persuading the courts that its preemption
determinations are valid.

I have previously argued that when a court reviews a federal
agency’s claim of preemption based on an ambiguous federal statute,
the court should require a “plain statement” of congressional
intent to delegate preemptive authority to the agency. (302) Such an
approach would be consistent with “the federalism-based canons
articulated in Gregory [v. Ashcrof (303)].” (304) As I explained:

   Gregory held that the courts may not conclude that a [federal]
   statute alters 'the state-federal balance' in the absence of a
   'plain statement' of Congress' intent to change that balance. The
   [Supreme] Court explained that this 'plain statement rule' helps to
   ensure that 'the political process' has given appropriate
   consideration to the states' interest in being protected 'against
   intrusive exercises of Congress' Commerce Clause powers.'

   ....

   To preserve our federal structure, Gregory's ban on judicial
   inference of preemptive intent from ambiguous statutes should apply
   with at least equal force when federal agencies claim to speak for
   Congress in asserting preemption based on statutory ambiguity.
   Unlike Congress, federal agencies are less vulnerable to discipline
   from 'the political process' and do not provide the states with any
   constitutionally-guaranteed structure of representation that would
   promote a vigorous and thorough discussion of the states' interests
   and concerns before a preemptive regulation is adopted. (305)

As I pointed out, granting Chevron deference to agency preemptive
rulings conflicts with Gregory because it gives agencies “a
far-reaching power to override state law, except in those rare
situations where Congress has unambiguously barred an agency from
acting.” (306) For example, a highly deferential Chevron-based
approach, which was advocated by Justice Thomas in his dissenting
opinion in Cuomo, “would have created a virtually conclusive
presumption in favor of the OCC’s authority to preempt the
states’ sovereign law enforcement powers, even though the OCC was
relying on an admittedly ambiguous statute.” (307) Fortunately, a
majority of the Supreme Court rejected that approach in Cuomo. (308)

Section 5136C(b)(5)(A) makes clear that the OCC may not obtain
Chevron deference for its future preemption determinations. (309)
Dodd-Frank’s endorsement of Skidmore deference will force the OCC
to bear the burden of persuading the courts that its preemption
determinations are correct. In addition, Skidmore deference will
encourage the courts to resolve the OCC’s preemption claims
“in a manner that gives appropriate weight to the interests of
state autonomy within our federal system.” (310)

d. Dodd-Frank Denies Preemptive Immunity to Most Subsidiaries,
Affiliates and Agents of National Banks

Section 5136C contains three overlapping provisions that affirm the
applicability of state laws to subsidiaries, affiliates and agents of
national banks. First, Section 5136C(b)(2) declares that the NBA’s
provisions “do not preempt, annul, or affect the applicability of
any State law to any subsidiary or affiliate of a national bank (other
than a subsidiary or affiliate that is chartered as a national
bank).” (311) Thus, paragraph (b)(2) establishes that the NBA does
not preempt the application of state laws to any non-bank subsidiary or
affiliate of a national bank. That provision effectively overrules
Watters v. Wachovia Bank, N.A., (312) which held that state mortgage
lending laws did not apply to a state-chartered operating subsidiary of
a national bank as long as the NBA preempted such laws from applying to
the parent bank. (313) Thus, the holding in Watters will no longer be
valid after Title X of Dodd-Frank becomes effective on July 21, 2011.
(314)

Second, Section 5136C(e) provides that:

   [N]otwithstanding any provision of [the NBA], a State consumer
   financial law shall apply to a subsidiary or affiliate of a
   national bank (other than a subsidiary or affiliate that is
   chartered as a national bank) to the same extent that the State
   consumer financial law applies to any person, corporation, or other
   entity subject to such State law. (315)

Subsection (e) covers much of the same ground as paragraph (b)(2),
except that subsection (e) focuses on nondiscrimination (i.e., the equal
application of state laws to all affected persons) and applies only to
“State consumer financial laws” instead of all state laws.
(316) If a state consumer financial law applies on a nondiscriminatory
basis to any person, corporation, or other entity, then the same law
applies equally to a non-bank subsidiary or affiliate of a national
bank.

Third, Section 5136C(h) provides that “[n]o provision of [the
NBA] shall be construed as preempting, annulling, altering or affecting
the applicability of State law to any subsidiary, other affiliate, or
agent of a national bank (other than a subsidiary, affiliate, or agent
that is chartered as a national bank).” (317) The non-preemptive
language of subsection (h) closely resembles the text of paragraph
(b)(2). However, subsection (h) has a broader scope because it declares
that the NBA does not preempt the application of state law to agents of
national banks. Subsection (h) thereby effectively overrules past lower
court decisions holding that agents of national banks were entitled to a
preemptive immunity from state laws comparable to that granted to
operating subsidiaries by the Supreme Court in Watters. (318)

3. Dodd-Frank Requires the OCC to Rescind or Modify Its Existing
Preemption Rules Except for the Regulation Governing the Charging of
“Interest” under 12 U.S.C. [section] 85

Section 5136C of the NBA, as enacted by Dodd-Frank, directly
conflicts with the blanket preemption regulations that the OCC adopted
in 2004 with regard to real estate loans, deposits, non-real estate
loans, and other “operations” of national banks. (319) The
OCC’s regulations mandate an across-the-board preemption of state
laws that “obstruct, impair, or condition a national bank’s
ability to fully exercise” its powers in four broadly-defined areas
of the banking business: (i) real estate lending, (ii) other types of
lending, (iii) deposit-taking, and (iv) other “activities”
authorized for national banks under federal law. (320) As shown below,
the OCC’s 2004 preemption rules conflict with Section 5136C in
three major respects.

First, Dodd-Frank overrides the “obstruct, impair, or
condition” preemption test contained in the OCC’s 2004
preemption rules. Second, the OCC’s blanket preemption rules
contravene Dodd-Frank’s requirements for individualized,
“case-by-case” preemption determinations that are supported by
“substantial evidence.” Third, in view of Dodd-Frank’s
provisions upholding the application of state law to non-bank
subsidiaries, affiliates, and agents of national banks, the OCC must
rescind its preemptive regulation for operating subsidiaries.

a. The OCC’s Preemption Test Conflicts with the Barnett Bank
Preemption Standard Incorporated by Dodd-Frank

The “obstruct, impair, or condition” preemption test
contained in the OCC’s regulations has a much broader scope than
the “prevents or significantly interferes with” standard set
forth in Section 5136C(b)(1)(B). In fact, when the OCC adopted its
preemption rules in 2004, it specifically declined to adopt the
“prevent or significantly interfere with” standard that was
articulated in Barnett Bank. (321) The OCC argued that the “variety
of [preemption] formulations” that it abstracted from Supreme Court
cases “defeats any suggestion that any one phrase constitutes the
exclusive standard for preemption.” (322) The OCC also asserted
that its “obstruct, impair, or condition” test was “a
distillation of the various preemption constructs articulated by the
Supreme Court” but was not “in any way inconsistent” with
Barnett Bank. (323)

Notwithstanding the OCC’s claims, its 2004 preemption test is
plainly incompatible with the preemption standard adopted by Congress in
Section 5136C(b)(1)(B). The OCC’s test omits the word
“significantly,” and it thereby contemplates the preemption of
state laws that only modestly or even trivially burden the exercise of
national bank powers. (324) Moreover, the OCC’s preemption rules
provide that even general state laws (e.g., laws dealing with contracts,
crimes, real property, torts, and zoning) are subject to preemption if
they more than “incidentally affect” the exercise of national
bank powers. (325) The OCC asserted in its 2004 rulemaking that state
laws apply to national banks only to the extent that such laws make it
possible for national banks to exercise their powers: “In general,
[non-preempted state laws] do not attempt to regulate the manner or
content of national banks’ [powers] but instead form the legal
infrastructure that makes it practicable to exercise a permissible
Federal power.” (326) Thus, the OCC’s “legal
infrastructure” theory contemplates a preemption regime that would
override all state laws except for those that support the exercise of
national bank powers. (327) In other words, as I pointed out in 2004,
the OCC’s theory allows “only helpful state laws” to
apply to national banks, thereby creating “a regime of field
preemption in everything but name.” (328)

The Supreme Court strongly criticized the OCC’s “legal
infrastructure” theory in Cuomo. (329) The Court declared that the
OCC’s theory “does not comport with the [NBA]” because
the theory “attempts to do what Congress declined to do: exempt
national banks from all state banking laws, or at least state
enforcement of those laws.” (330) Thus, Cuomo severely undermined
the theoretical justification underlying the OCC’s 2004 preemption
rules.

In addition, the Senate committee report and the conference report
on Dodd-Frank confirm that the Barnett Bank standard incorporated in
Section 5136C(b)(1)(B) overrides the OCC’s preemption test and
allows a wider range of state consumer financial laws to apply to
national banks. The Senate committee report explains:

   Section 1044 [of Dodd-Frank] amends the National Bank Act to
   clarify the preemption standard relating to State consumer
   financial laws as applied to national banks.... The standard for
   preempting State consumer financial law would return to what it had
   been for decades, those recognized by the Supreme Court in Barnett
   Bank v. Nelson, 517 U.S. 25 (1996), undoing broader standards
   adopted by rules, orders, and interpretations issued by the OCC in
   2004. (331)

Similarly, the conference report affirms that Dodd-Frank
“revises the standard the OCC will use to preempt state consumer
protection laws. It codifies the standard in the 1996 Supreme Court case
of [Barnett Bank].” (332) Therefore, notwithstanding recent
statements by lawyers representing national banks, (333) the OCC’s
2004 preemption test will not be valid when Section 5136C(b)(1)(B)
becomes effective on July 21, 2011. (334)

b. The OCC’s Blanket Preemption Rules Are No Longer Valid in
View of Dodd-Frank’s Mandate for “Case-by-Case”
Determinations Supported by “Substantial Evidence ”

As discussed above, Section 5136C(b) requires the OCC (i) to make
each preemption determination on a “case-by-case basis,” and
(ii) to consult with the CFPB before deciding that additional state laws
are subject to preemption because their terms are “substantively
equivalent” to a particular law that the OCC has preempted. (335)
In addition, under Section 5136C(c), the OCC must demonstrate that each
of its preemption determinations is justified by “substantial
evidence, made on the record of the proceeding,” which
“supports the specific finding regarding the preemption of such
[state law] in accordance with the legal standard of [Barnett
Bank].” (336) The OCC’s 2004 preemption rules do not satisfy
any of these requirements.

The OCC’s preemption rules violate Dodd-Frank’s
“case-by-case” requirement because (i) they preempt broad
categories of state law and do not contain any individualized analysis
of why particular state laws violate the Barnett Bank standard, and (ii)
the OCC did not consult with the CFPB before adopting its categorical
preemptions of multiple state laws. (337) Indeed, the OCC acknowledged
when it issued its rules that it was “identifying [preempted] state
laws in a more generic way.” (338) The OCC’s 2004 rulemaking
also did not contain Dodd-Frank’s required demonstration of
“substantial evidence” to justify each OCC determination that
a particular state law ran afoul of the Barnett Bank standard. (339)
Rather, the OCC gave only scattered examples of state laws that
allegedly “created higher costs and increased operational
challenges” for national banks, and the OCC justified its
across-the-board preemption rules by declaring that national banks
should be free to operate under “uniform, consistent, and
predictable standards … without interference from inconsistent state
laws, consistent with the national character of the national banking
system.” (340) That generalized assertion cannot be squared with
Dodd-Frank’s adoption of the Barnett Bank preemption standard or
with Dodd-Frank’s mandate that the OCC must make preemption
determinations on a “case-by-case” basis and with support from
“substantial evidence” in the record. Hence, the OCC’s
2004 preemption rules must be rescinded in their entirety, and any
replacement rules must comply fully with Dodd-Frank’s requirements.

c. The OCC’s Preemptive Rule for Operating Subsidiaries
Conflicts with Dodd-Frank

As described above, Section 5136C contains three provisions that
affirm the applicability of state laws to non-bank subsidiaries,
affiliates, or agents of national banks. (341) Those provisions require
the OCC to rescind a preemptive regulation issued in 2001, which
declared that operating subsidiaries are entitled to the same preemptive
immunity from state laws as their parent national banks enjoy under the
NBA. (342) The Supreme Court upheld that regulation in its 2007 decision
in Watters. (343) However, Dodd-Frank overrules the Court’s
decision and mandates that non-bank subsidiaries, affiliates, and agents
of national banks must comply with applicable state laws. (344)

d. The OCC’s Existing Preemption Rules Must Conform to
Dodd-Frank by July 21, 2011

Some commentators have suggested that the preemption provisions of
Dodd-Frank apply only to “future [OCC preemption] determinations,
and [therefore] previous agency rulings still stand.” (345)
However, four provisions of Dodd-Frank make clear that all but one of
the OCC’s existing preemption rules will be invalid unless they are
brought into conformity with Dodd-Frank’s new preemption standards
by July 21, 2011.

First, Section 5136C(b)(1) provides that “State consumer
financial laws are preempted, only if” such laws violate one of the
three preemption standards contained in that paragraph. (346) The
“only if” language makes clear that Dodd-Frank’s new
preemption standards establish the controlling and exclusive
requirements for justifying any preemption of state consumer financial
laws. (347) Second, Section 1048 of Dodd-Frank provides that the new
preemption standards for the NBA and HOLA established by Sections 1044
through 1047 “shall become effective on the designated transfer
date” (viz., July 21, 2011). (348) Subject to two special
carve-outs described below, Section 1048 requires the OCC’s to
comply fully with the new preemption standards on and after July 21,
2011.

Third, Section 5136C(f) expressly preserves the existing authority
of each national bank, under 12 U.S.C. [section] 85, to charge interest
“at the rate allowed by the laws of the State … where the bank is
located.” (349) Subsection (f) also preserves “the meaning of
‘interest’ under [12 U.S.C. [section] 85].” (350) The
Senate committee report explains that Dodd-Frank “does not alter or
affect existing laws regarding the charging of interest by national
banks.” (351) Thus, Subsection (f) preserves the OCC’s
existing preemptive regulation defining the meaning of
“interest” under Section 85, as well as interpretive rulings
and court decisions that have given national banks “most favored
lender” status and an expansive power to “export”
interest rates across state lines under Section 85. (352)

Section 5136C(f)’s explicit preservation of the OCC’s
existing preemption regulation under 12 U.S.C. [section] 85 provides
strong evidence of Congress’s intent–as also manifested in Section
1048–that the OCC’s preemption rules in other areas must be
brought into compliance with Title X of Dodd-Frank by July 21, 2011.
(353) This congressional understanding is confirmed by the fourth
relevant provision of Dodd-Frank–Section 1043. Section 1043 provides
that Title X of Dodd-Frank and CFPB’s regulations and orders
thereunder:

   shall not be construed to affect the applicability of any rule,
   order, guidance or interpretation by the OCC or OTS regarding the
   preemption of State law by a Federal banking law to any contract
   entered into by banks, thrifts, or affiliates and subsidiaries
   thereof, prior to the date of enactment of the CFP Act. (354)

As explained in the Senate committee report, Section 1043 is
intended to “provide stability to existing contracts” by
preserving the applicability of OCC and OTS preemptive rulings to
contracts that were made before the enactment date of Dodd-Frank. (355)
There would have been no reason for Congress to enact Section 1043 if
Congress had intended to allow existing OCC and OTS preemption rules to
apply to new consumer financial agreements that are made after July 21,
2010.

Thus, apart from Dodd-Frank’s two special carve-outs for (i)
the OCC’s preemptive regulation governing the charging of
“interest,” and (ii) the continued application of the
OCC’s existing preemption rules to contracts made by national banks
and federal thrifts before July 22, 2010, the OCC’s preemption
rules will not be valid after July 21, 2011, unless they are brought
into full compliance with the new preemption standards and requirements
established by Section 5136C. (356) Remarkably, as of March 2011–eight
months after Dodd-Frank’s enactment and only four months before the
effective date of Section 5136C–the OCC had not issued any public
notice indicating how it intended to respond to the new standards and
requirements of Section 5136C. (357) Indeed, the OCC had not yet
modified its visitorial powers regulation, even though the Supreme
Court’s 2009 decision in Cuomo invalidated a portion of that
regulation. (358)

4. Dodd-Frank Affirms the Authority of State AGs to Enforce
Applicable Laws Against National Banks

Section 1047(a) of Dodd-Frank enacts a new section 5136C(i) of the
NBA. (359) Section 5136C(i) provides:

   In accordance with the decision of the Supreme Court ... in
   [Cuomo], no provision of [the NBA] which relates to visitorial
   powers or otherwise limits or restricts the visitorial authority to
   which any national bank is subject shall be construed as limiting
   or restricting the authority of any attorney general (or other
   chief law enforcement officer) of any State to bring an action
   against a national bank in a court of appropriate jurisdiction to
   enforce an applicable law and to seek relief as authorized by such
   law. (360)

Thus, Subsection (i) expressly endorses the Supreme Court’s
decision in Cuomo, (361) which held that the NBA does not preempt the
authority of a state attorney general (AG) to seek judicial enforcement
of non-preempted state laws against national banks. (362) Subsection (i)
also evidently upholds the right of a state AGs to seek judicial
enforcement of any applicable federal law “as authorized by such
law,” because Subsection (i) refers to the enforcement of
“applicable law” rather than “applicable State law.”
(363)

Interpreting Subsection (i) to permit state AGs to enforce
applicable federal law “as authorized by such law” would be
consistent with the Supreme Court’s reasoning in Cuomo. In Cuomo,
the Court held that “ordinary enforcement of the law” by state
AGs through the courts does not represent a prohibited exercise of
“visitorial powers” over national banks. (364) Moreover, the
NBA itself indicates that state officials may exercise “visitorial
powers” over national banks to the extent “authorized by
Federal law.” (365)

Dodd-Frank’s explicit incorporation of Cuomo provides a
significant benefit to the states because it effectively removes the
possibility that Cuomo (a 5-4 decision) might have been overruled by a
subsequent decision of the Supreme Court. Without Dodd-Frank’s
affirmation of Cuomo, such a possibility would have been a matter of
potential concern to the states, in view of the fact that two members of
the majority in Cuomo (Justices Souter and Stevens) have subsequently
retired from the Court.

5. Dodd-Frank Establishes Preemption Standards under HOLA That Are
Equivalent to

Those Embodied in the NBA

Dodd-Frank enacts a new Section 6 of HOLA. (366) Section 6(a)
provides that every preemption determination made by a court or agency
under HOLA “shall be made in accordance with the laws and legal
standards applicable to national banks regarding the preemption of State
law.” (367) Thus, Dodd-Frank establishes new preemption standards
for state consumer financial laws under HOLA that are equivalent to the
new preemption standards created under Section 5136C of the NBA for
national banks. (368) This outcome appears to create a significant
change in existing law. Before Dodd-Frank was enacted, several lower
courts concluded that the OTS had a broader power to preempt state law
under HOLA than the OCC possessed under the NBA. (369)

Section 6(b) declares that HOLA “does not occupy the field in
any area of State law.” (370) Thus, future preemption
determinations under HOLA must be based on conflict preemption
principles. In addition, Section 6(c) provides that the authority of
state AGs to seek judicial enforcement of “applicable law”
against national banks under section 5136C(i) “shall apply to
Federal savings associations, and any subsidiary thereof, to the same
extent and in the same manner, as if such savings associations, or
subsidiaries thereof, were national banks or subsidiaries of national
banks, respectively.” (371) Thus, Section 6(c) incorporates Section
5136c(i) and its affirmation of the right of state officials to seek
judicial enforcement of applicable laws against federally-chartered
depository institutions. (372)

Dodd-Frank’s denial of field preemption under HOLA will
require the OCC to rescind, or fundamentally rewrite, three of the
OTS’s preemptive regulations. (373) Those regulations purport to
occupy the field with respect to the deposit-taking, lending, and other
“operations” of federal thrifts and are therefore incompatible
with Section 6(b)’s conflict preemption regime. Similarly, the new
preemption standards for national banks contained in Section 5136C of
the NBA–which will apply to federal thrifts under Section 6(a) of HOLA
after July 21, 2011–will require the rescission or modification of many
of the provisions contained in the OTS’s preemptive regulations
with respect to deposit-taking, lending and other
“operations.” (374) Those OTS regulations are similar to the
OCC’s 2004 blanket preemption rules, discussed above, and therefore
do not comply with the requirements of Section 5136C for (i) application
of the “prevents or significantly interferes with” preemption
standard, (ii) “case-by-case” preemption determinations
instead of broad categorical rules, and (iii) a showing of
“substantial evidence” supporting each preemption
determination. (375)

In addition, Section 6(a)’s incorporation of Section
5136C(b)(2), (e), and (h) mandates the application of state laws to
subsidiaries, affiliates, and agents of federal thrifts. (376) As
discussed above, Section 5136C(b)(2), (e), and (h) effectively overrule
the preemptive immunity that operating subsidiaries and agents of
national banks were granted by an OCC regulation and court decisions.
(377) Consequently, Section 6(a) will require rescission of (i) an OTS
preemptive regulation that purports to give operating subsidiaries a
general immunity from state laws, (378) and (ii) an OTS preemptive
ruling that provided a comparable immunity to agents of federal thrifts.
(379)

Like the new Section 5136C of the NBA, the new section 6 of HOLA
does not establish an explicit preemption standard for state laws of
general applicability because those laws do not fall within the
definition of “State consumer financial laws.” (380) However,
Section 6(a) provides that any preemption determination “regarding
the relation of State law to a provision of [HOLA]” must be
“made in accordance with the laws and legal standards applicable to
national banks regarding the preemption of State law.” (381) As
shown in the next Part, Supreme Court decisions indicate that general
state laws presumptively apply to national banks. (382) Section 6(a)
will require the courts and federal agencies to apply the same standard
in determining the application of general state laws to federal thrifts.

6. Dodd-Frank Does Not Address State Laws of General Application,
But Those Laws Should Presumptively Apply to National Banks under
Existing Judicial Precedents

As explained above, Dodd-Frank establishes a new preemption
standard for national banks and federal thrifts that refers only to
“State consumer financial laws” and does not mention state
laws of general application. (383) Accordingly, Dodd-Frank’s new
preemption standards and requirements do not alter the applicability of
general state laws to national banks and federal thrifts. (384) In these
circumstances, two background assumptions support the presumptive
application of state laws to national banks.

First, when construing a “federal statutory scheme that is
comprehensive and detailed” the Supreme Court has opined that
“matters left unaddressed in such a scheme are presumably left
subject to the disposition provided by state law.” (385)
Accordingly, Dodd-Frank’s silence with regard to preemption of
general state laws should raise an inference that Congress contemplated
the presumptive application of such laws to national banks. (386)
Second, the Court has explained that “Congress is presumed to be
aware of an administrative or judicial interpretation of a statute and
to adopt that interpretation when it re-enacts a statute without
change.” (387) Consequently, Section 5136C should be construed in
harmony with Supreme Court decisions that predated Dodd-Frank and
defined the applicability of general state laws to national banks. As
shown below, those decisions support a presumption in favor of applying
state laws of general application to national banks.

In its 2009 decision in Cuomo, (388) the Supreme Court declared
that: “States … have always enforced their general laws against
national banks–and have enforced their banking-related laws against
national banks for at least 85 years, as evidenced by [First National
Bank in] St. Louis [v. Missouri], (389) in which we upheld enforcement
of a state anti-bank-branching law.” (390)

Thus, Cuomo affirmed the applicability of “general [state]
laws” to national banks. (391) When Congress passed Dodd-Frank, it
was plainly aware of the Court’s opinion in Cuomo because, as
discussed above, Congress expressly adopted Cuomo as the governing
standard for defining the states’ judicial enforcement authority
against national banks under Section 5136C(i). (392)

Moreover, the St. Louis decision–which Cuomo explicitly
endorsed–supports the view that a presumption against preemption should
be applied in determining whether general state laws apply to national
banks. St. Louis held that, under the NBA, “the rule [is] the
operation of general state laws upon the dealings and contracts of
national banks,” while preemption is an “exception” that
applies only when state laws “expressly conflict with the laws of
the United States or frustrate the purpose for which national banks were
created, or impair their efficiency to discharge the duties imposed upon
them by the law of the United States.” (393) Thus, the presumptive
“rule” under St. Louis is the applicability of “general
state laws” to the business operations of national banks. (394)

Cuomo and St. Louis are consistent with Atherton v. FDIC, (395)
which declared that “federally chartered banks are subject to state
law.” (396) As support for that principle, Atherton quoted prior
Supreme Court decisions reaching back to National Bank v. Commonwealth
(397)–issued only six years after the NBA’s enactment–where the
Supreme Court held that national banks

   [a]re subject to the laws of the State, and are governed in their
   daily course of business far more by the laws of the State than of
   the nation. All their contracts are governed and construed by State
   laws. Their acquisition and transfer of property, their right to
   collect their debts, and their liability to be sued for debts, are
   all based on State law. It is only when State law incapacitates the
   [national] banks from discharging their duties to the [federal]
   government that it becomes unconstitutional. (398)

Thus, Commonwealth upheld the applicability of general state laws
to national banks unless such laws “incapacitate[d]” national
banks from fulfilling their “duties” to the United States.
Under the NBA as originally enacted in 1863 and amended in 1864, the
duties of national banks were (i) to issue a national currency in the
form of national bank notes, and (ii) to purchase and deposit Treasury
bonds with the United States Treasury to ensure the payment of those
notes. (399) The foregoing duties were phased out following enactment of
the Federal Reserve Act in 1913, and national banks stopped issuing bank
notes by 1935. (400) Accordingly, the “duties” referred to in
Commonwealth are no longer relevant, and general state laws therefore
apply to national banks in the absence of a direct and irreconcilable
conflict with federal law. (401)

Commonwealth’s affirmation that state law generally controls
the “right [of national banks] to collect their debts” as well
as “their contracts” and “[t]heir acquisition and
transfer of property” was quoted with approval in McClellan v.
Chipman. (402) McClellan held that a national bank was required to
comply with a Massachusetts statute that prohibited any transfer of
property by an insolvent debtor “with a view to give a preference
to a creditor or person who has a claim against him.” (403)
McClellan upheld the applicability of the Massachusetts statute even
though the state law imposed a limitation on the express power of
national banks to accept transfers of real property in satisfaction of
debts previously contracted under 12 U.S.C. [section] 29. The Supreme
Court explained:

   No function of such [national] banks is destroyed or hampered by
   allowing the banks to exercise the power to take real estate,
   provided only they do so under the same conditions and restrictions
   to which all the other citizens of the State are subjected, one of
   which limitations arises from the provisions of the state law which
   in case of insolvency seeks to forbid preferences between
   creditors. (404)

Thus, McClellan found “no conflict between the special power
conferred by Congress upon national banks to take real estate for
certain purposes, and the general and undiscriminating law of the State
of Massachusetts subjecting the taking of real estate to certain
restrictions, in order to prevent preferences in cases of
insolvency.” (405)

Similarly, in Anderson National Bank v. Luckett (406) the Court
held that national banks were required to comply with a Kentucky statute
that required all banks to transfer dormant deposit accounts to state
authorities for a determination of whether such accounts had been
abandoned and should be escheated to the state. (407) A national bank,
supported by the OCC as amicus curiae, challenged the Kentucky statute
on grounds of preemption. (408) The Supreme Court rejected the
bank’s preemption claim, declaring that “the mere fact that
the depositor’s account is in a national bank does not render it
immune to attachment by creditors of the depositor, as authorized by
state law.” (409) The Court further explained that:

   [A] bank account is ... part of the mass of property within the
   state whose transfer and devolution is subject to state control....
   It has never been suggested that non-discriminatory [state] laws of
   this type are so burdensome as to be inapplicable to the accounts
   of depositors in national banks. (410)

Luckett thereby confirmed that the power of national banks to
accept deposits is subject to nondiscriminatory, general state laws
establishing contract rights and creditors’ rights with respect to
personal property, including deposit accounts. In this regard, the
Supreme Court held that:

   [A]n inseparable incident of a national bank's privilege of
   receiving deposits is its obligation to pay them to the persons
   entitled to demand payment according to the law of the state where
   it does business. A demand for payment of an account by one
   entitled to make the demand does not infringe or interfere with any
   authorized function of the bank. (411)

As noted above, courts generally follow a canon of statutory
construction that Congress is presumed to approve judicial
interpretations of portions of a statute that Congress reenacts without
change. (412) Because the NBA, as amended by Section 5136C, does not
mention any preemption of general state laws, (413) courts should
construe the NBA in harmony with Cuomo, Commonwealth, McClellan,
Luckett, and Atherton, all of which support the presumptive application
of general state laws to national banks. Thus, Section 5136C should be
deemed to leave undisturbed existing Supreme Court precedents governing
the application of general state laws to national banks.

The Supreme Court’s decision in Wyeth v. Levine (414) provides
further support for the conclusion that state laws of general
application presumptively apply to national banks. In Wyeth, the Supreme
Court held that provisions of the Federal Food, Drug, and Cosmetic Act
(FDCA) governing the approval of drug labels by the Food and Drug
Administration (FDA) did not preempt failure-to-warn claims under state
tort law. (415) In reaching that conclusion, the Court noted that
Congress had expressly preempted state common-law claims with respect to
“medical devices” but had not passed any similar law with
respect to drug labeling. (416) Moreover, Congress was aware of the
existence of state common-law remedies when it enacted and amended the
FDCA. (417) The Court held that

   [Congress'] silence on this issue, coupled with its certain
   awareness of the prevalence of state tort litigation, is powerful
   evidence that Congress did not intend FDA oversight to be the
   exclusive means of ensuring drug safety and effectiveness. As
   Justice O'Connor explained in her opinion for a unanimous Court:
   'The case for federal pre-emption is particularly weak where
   Congress has indicated its awareness of the operation of state law
   in a field of federal interest, and has nonetheless decided to
   stand by both concepts and to tolerate whatever tension there [is]
   between them.' (418)

The Court’s reasoning in Wyeth strongly supports the
presumptive application of general state laws to national banks. (419)
With respect to national banks, Dodd-Frank has established an express
preemption regime for “State consumer financial laws,” whose
contours are carefully defined by Section 5136C, in the same manner that
the FDCA prescribes an express preemption regime for “medical
devices.” (420) However, Dodd-Frank does not establish any system
of express preemption for national banks with regard to state laws of
general application (including state common-law rules governing
contracts, property rights, and torts) in the same way that the FDCA
does not prescribe a system of express preemption for drug labels. Under
these circumstances, Wyeth held that the courts should apply a
“presumption against pre-emption” of general state laws
despite the federal government’s regulatory presence in the field.
(421) Wyeth explained:

   We rely on the presumption [against preemption] because respect for
   the States as 'independent sovereigns in our federal system' leads
   us to assume that 'Congress does not cavalierly pre-empt state-law
   causes of action,' Medtronic, Inc. v. Lohr, 518 U.S. 470, 485
   (1996). The presumption thus accounts for the historic presence of
   state law but does not rely on the absence of federal regulation.
   (422)

In Cuomo, the Court indicated that the reasoning of Wyeth also
applies to the NBA, because the Court cited Wyeth to illustrate its
observation that the simultaneous application of federal and state laws
to national banks “echoes many other mixed state/federal regimes in
which the Federal Government exercises general oversight while leaving
state substantive law in place.” (423) As shown above, several of
the Court’s decisions under the NBA provide additional support for
the conclusion that general state laws presumptively apply to national
banks. (424)

IV. TITLE X OF DODD-FRANK CREATES A REGIME OF INTERACTIVE
FEDERALISM THAT WILL PROVIDE BETTER SAFEGUARDS FOR CONSUMERS OF
FINANCIAL SERVICES

Title X of Dodd-Frank establishes a regime of “interactive
federalism” by granting overlapping powers to CFPB and state
officials to adopt and enforce consumer financial protection laws. (425)
The interactive regime created by Title X is likely to produce
significant public benefits by promoting both cooperation and
competition among federal and state officials. First, as shown in Part
IV.A, Title X will encourage experimentation, innovation, and continuous
reform as federal and state officials consult with each other and also
compete with each other to provide optimal consumer financial
protection. Second, as shown in Part IV.B, Title X will enable state
legislatures and state AGs to assist CFPB in counteracting political
influence exerted by the financial services industry.

A. Title X Will Promote Beneficial Cooperation, Competition, and
Innovation by CFPB and State Officials

Title X’s regime of interactive federalism will encourage a
“dynamic interaction” among federal and state officials as
they exercise their concurrent authorities over the field of consumer
financial protection. (426) The interplay among federal and state
authorities under Title X will benefit the public in at least four ways.
First, federal and state officials will take different approaches in
addressing the challenge of protecting consumers of financial services,
and the resulting alternative strategies will produce fruitful
experimentation and innovation. (427) For example, the “dual
banking system” consisting of federally-chartered and
state-chartered banks has “permitted states to act as
‘laboratories’ in experimenting with new banking products,
structures, and supervisory approaches, and Congress has subsequently
incorporated many of the states’ successful innovations into
federal legislation.” (428) Similarly, concurrent enforcement of a
wide range of federal regulatory statutes by federal and state officials
has encouraged experimentation and innovation in enforcement approaches.
(429)

Second, dual regulation promotes dialogue among federal and state
officials, which in turn facilitates learning and regulatory
improvement. (430) For example, in the field of environmental
protection, most federal statutes–like Title X of Dodd-Frank–establish
minimum “floor” requirements and permit states to adopt
supplemental safeguards. (431) Such statutes create “many venues in
which policy choices are explored” and stimulate extensive
“interaction among federal and state regulators, as well as other
stakeholders,” thereby encouraging “more rigorous regulatory
analysis” that will “challenge the status quo.” (432)

Third, overlapping federal and state authorities offer
“alternative forms of relief” and thereby provide “an
additional source of protection if one or the other government should
fail to offer adequate protection.” (433) Enforcement actions by
state officials to combat securities abuses between 2002 and 2006
provide a vivid illustration of the “failsafe function” that
state officials can perform when federal regulators do not provide
adequate protection to consumers and investors. (434) As discussed
above, New York Attorney General Eliot Spitzer, Massachusetts Secretary
of State William Galvin, and other state regulators brought numerous
enforcement proceedings against major securities firms after the SEC
failed to act, and those state proceedings ultimately persuaded the SEC
to take similar steps. (435) Similarly, state enforcement initiatives in
other fields (including antitrust, environmental protection, and
regulation of tobacco and other dangerous products) have spurred
beneficial changes in national policy. (436) In contrast, as discussed
above, the OCC’s and OTS’s preemptive regulations largely
undermined states’ efforts to combat predatory lending during the
housing bubble that led to the financial crisis. (437)

Fourth, overlapping federal and state lawmaking and enforcement
roles can promote beneficial “regulatory competition.” (438)
Although it is possible for federal-state competition to produce
“over-regulation,” the growing power of large financial
conglomerates, the globalization of financial markets, and the magnitude
of the recent financial crisis indicate that “under-regulation and
regulatory gaps” pose greater threats to the welfare of consumers
and investors. (439) Regulatory regimes that create overlapping federal
and state responsibilities are likely to reduce the risk of
“under-regulation,” particularly when regulators at either
level of government are vulnerable to “regulatory capture.”
(440) In this regard, Gillian Metzger has suggested that Cuomo, Wyeth,
and other recent Supreme Court decisions reflect the Court’s
“concern that federal agencies may be systematically failing to
meet their statutory responsibilities” as well as the Court’s
appreciation for “the role of state law and state enforcement in
improving federal regulatory performance.” (441)

B. Title XReduces the Risk that CFPB Might Be Captured by the
Financial Services Industry

Avoiding “capture” by regulated firms is a perennial
challenge for most regulatory agencies. (442) Congress designed CFPB to
be especially resistant to capture by the financial services industry,
because members of Congress and analysts agreed that the industry had
exercised excessive influence over bank regulators during the period
leading up to the financial crisis. (443) To strengthen CFPB’s
defenses against political or regulatory capture (i) Congress gave CFPB
substantial independence in making policies, issuing regulations and
bringing enforcement proceedings, and (ii) Congress provided CFPB with
an independent source of funding that does not depend on either
congressional appropriations or industry-paid assessments. (444)

Nevertheless, CFPB continues to face daunting political challenges
due to the determined and well-funded opposition of major financial
institutions and their trade associations and political allies. During
the debates over Dodd-Frank, big banks and their allies lobbied
vigorously to keep consumer protection functions within the traditional
banking agencies and to prevent the creation of any independent consumer
financial protection agency. (445) After Republicans took control of the
House of Representatives in January 2011, they introduced bills to
weaken CFPB by (i) removing CFPB’s independent funding and making
its budget subject to annual congressional appropriations, (ii)
replacing CFPB’s Director with a five-person commission, (iii)
enhancing FSOC’s ability to veto CFPB’s regulations, and (iv)
preventing CFPB from exercising its authorities until the Senate
confirms the first CFPB Director. (446) House Republican leaders have
acted in lockstep with major banks and their trade associations, which
continue to express vehement opposition to the implementation of
CFPB’s mandate. (447)

In addition, commentators have noted that regulated industries
ultimately succeeded in weakening and dominating the Consumer Product
Safety Commission (CPSC), despite CPSC’s original goal of
protecting consumers against hazardous products. (448) Although CPSC
bears a surface resemblance to CFPB, an important distinction is that
CPSC’s product-safety rules completely preempt the states’
ability to adopt additional requirements, and state AGs lacked authority
to enforce CSPC’s rules until 2008. (449) In contrast, as discussed
above, (i) the CFP Act and CFPB regulations establish only minimum
requirements and allow the states to adopt supplemental consumer
safeguards, and (ii) Title X of Dodd-Frank authorizes state AGs to
enforce the CFP Act (except against national banks and federal thrifts)
and to enforce CFPB regulations against all providers of consumer
financial services. (450) Thus, while state legislatures and state AGs
have been largely powerless to assist CPSC, they are potentially
influential partners who can help CFPB to mobilize public support and
resist capture by industry forces. (451)

State AGs have political motivations that make them more resistant
to regulatory capture than federal agency officials. Most state AGs are
elected rather than appointed, and they typically aspire to become
governors or Senators. (452) The political ambitions of state AGs give
them strong incentives to appeal to citizen electors by bringing public
enforcement actions to protect consumers and investors. (453) Thus,
state AGs are less susceptible to industry influence than federal
financial regulators because (i) state AGs aim to attract the votes of
ordinary citizens in future elections, while financial regulators often
hope to obtain future employment with large financial institutions or
their service providers, and (ii) the offices of state AGs are funded by
taxpayer revenues, while most federal financial regulatory agencies are
funded directly or indirectly by industry-paid assessments. (454)

Moreover, it is far more difficult for the financial services
industry to capture 50 state AGs than it is to dominate a single federal
agency. (455) Even a few state officials can act as influential public
“entrepreneurs” in exposing serious abuses that federal
agencies have neglected. (456) Eliot Spitzer and William Galvin showed
the ability of state enforcers to capture the public’s attention
and to influence national policy when they uncovered multiple securities
scandals that the SEC had overlooked; indeed, their enforcement actions
ultimately persuaded the SEC to take its own remedial steps. (457)

During the debates on Dodd-Frank, state AGs were among the
strongest supporters of an independent federal consumer financial
protection agency. (458) After Dodd-Frank was enacted, Elizabeth
Warren–who first proposed the agency’s creation and was appointed
to oversee CFPB’s organization–declared that state AGs were
CFPB’s “natural partners” and asked for their help. (459)
CFPB appointed former Ohio AG Richard Cordray as the first director of
CFPB’s enforcement division, (460) and CFPB subsequently entered
into cooperative agreements with state banking commissioners and state
AGs. (461) Thus, it appears that state officials–empowered by Title X
of Dodd-Frank–will be CFPB’s staunchest regulatory and political
allies as CFPB seeks to implement its mission of protecting consumers
from unfair, deceptive and abusive financial products.

V. CONCLUSION

Congress decided to establish CFPB after concluding that federal
bank regulators had repeatedly failed to provide effective safeguards
for consumers during the credit boom leading up to the financial crisis.
Congress determined that federal banking agencies accommodated the
desires of large financial institutions for immediate short-term
profits, overlooked concerns about those institutions’ long-term
safety and soundness, and disregarded the dangers posed to consumers by
predatory lending practices. In addition, Congress criticized the OCC
and the OTS for preempting the efforts of many states to combat
predatory practices.

In view of the federal regulators’ systematic failures to
protect consumers of financial services, Congress enacted Title X of
Dodd-Frank. Title X removes consumer financial protection
responsibilities from the federal banking agencies and centralizes those
tasks within CFPB. Title X promotes CFPB’s independence by granting
CFPB autonomy in its policymaking, rulemaking and enforcement functions,
and by giving CFPB an independent source of funding. In order to
supplement the protections provided by CFPB’s regulations, Title X
authorizes the states to adopt laws providing additional safeguards for
consumers of financial services. In order to increase the effectiveness
of CFPB’s enforcement efforts, Title X empowers state AGs to bring
administrative and judicial proceedings to enforce Title X’s
statutory provisions and CFPB’s regulations. Title X also imposes
significant limitations on the OCC’s ability to preempt the
application of state laws to national banks and federal thrifts.

By encouraging both cooperation and competition among CFPB and
state officials, Title X will promote experimentation, innovation, and
continuous reform in consumer financial protection. Moreover, state
legislatures and state AGs could play crucial roles in resisting efforts
by major financial institutions and their political allies to weaken
CPFB’s independence and undermine its effectiveness. In view of the
formidable political clout wielded by large financial conglomerates,
Title X’s grants of enhanced authority to state legislators and
state AGs could prove to be vital safeguards for consumers of financial
services.

(1.) Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. No. 111-203, 124 Stat. 1376 (2010).

(2.) Id. at Preamble (describing the purposes of Dodd-Frank).

(3.) President Barack H. Obama, Remarks on Signing the Dodd-Frank
Wall Street Reform and Consumer Protection Act (July 21, 2010),
available at http://whitehouse.gov/the-press-office/remarks-president-signingDodd- Frank-wall-street-reform-and-consumer-protection-act
[hereinafter Presidential Dodd-Frank Signing Statement].

(4.) Dodd-Frank [section] 1011(a), see also H.R. Rep. No. 111-517,
at 874 (2010) (Conf. Rep.), reprinted in 2010 U.S.C.C.A.N. 722, 730.

(5.) Presidential Dodd-Frank Signing Statement, supra note 3.

(6.) S. Rep. No. 111-176, at 11 (2010).

(7.) Rachel E. Barkow, Insulating Agencies: Avoiding Capture
Through Institutional Design, 89 Tex. L. Rev. 15, 18 (2010).

(8.) S. Rep. No. 111-176, at 11 (2010).

(9.) Id. at 15.

(10.) Id. (quoting congressional testimony of Patricia McCoy on
Mar. 3, 2009).

(11.) Id. at 166.

(12.) Id. at 16; see also infra Part II.E.1 (describing passage of
anti-predatory lending laws by 30 states and the District of Columbia).

(13.) S. Rep. No. 111-176, at 16 (2010).

(14.) Id. at 17.

(15.) Id. at 174.

(16.) Barkow, supra note 7, at 75-76; see also William W. Buzbee,
Asymmetrical Regulation: Risk, Preemption, and the Floor/Ceiling
Distinction, 82 N.Y.U. L. Rev. 1547, 1554-56, 1586-89 (2007) (explaining
the advantages of federal statutory schemes that establish a
“floor” of minimum federal standards but allow individual
states to experiment by adopting more protective measures); S. Rep. No.
111-176, at 174-75 (“If States were not allowed to take the
initiative to enact laws providing greater protection for consumers, the
Federal Government would lose an important source of information and
reason to adjust [federal] standards over time.”). Cf. New State
Ice Co. v. Liebman, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting)
(“It is one of the happy incidents of the federal system that a
single courageous State may, if its citizens choose, serve as a
laboratory; and try novel social and economic experiments without risk
to the rest of the country.”).

(17.) See Adam J. Levitin, Hydraulic Regulation: Regulating Credit
Markets Upstream, 26 Yale J. on Reg. 143, 199-200 (2009) (describing
political motivations that cause state officials to act as
“normative entrepreneurs” in adopting new policies to protect
consumers).

(18.) Barkow, supra note 7, at 53-57, 75-76; see also Buzbee, supra
note 16, at 1609-11 (describing risks of regulatory capture); Levitin,
supra note 17, at 199-206 (explaining why state enforcement of consumer
protection laws could help to prevent regulatory capture).

(19.) Arthur E. Wilmarth, Jr., The Dark Side of Universal Banking:
Financial Conglomerates and the Origins of the Subprime Lending Crisis,
41 Conn. L. Rev. 963, 1015-17, 1027 (2009). The term “nonprime
mortgages” includes “subprime” and “Alt-A”
mortgages. Subprime mortgages were marketed to borrowers who had poor
credit histories (including low credit scores and/or recent
bankruptcies) as well as inadequate savings to make substantial down
payments. In contrast, Alt-A loans were typically made to borrowers who
had less serious credit problems or who were unable or unwilling to
provide full documentation of their income or assets. Id. at 1015-16,
1016 n.256.

(20.) Home Ownership and Equity Protection Act, Pub. L. No.
103-325, [section][section] 151-58, 108 Stat. 2190, 219098 (1994)
(codified as amended at various provisions of 15 U.S.C.).

(21.) See infra Parts II.A, II.B (describing the FRB’s
regulatory shortcomings)

(22.) See infra notes 112-16 and accompanying text (discussing
state APL laws).

(23.) Congressional Oversight Panel, December Oversight Report: A
Review of Treasury’s Foreclosure Prevention Programs 10 (Dec. 14,
2010).

(24.) Kathleen C. Engel & Patricia A. McCoy, The Subprime Virus
194-95 (2011).

(25.) Id.

(26.) 15 U.S.C. [section] 1639(l)(2) (1980).

(27.) Engel & McCoy, supra note 24, at 195; Oren Bar-Gill &
Elizabeth Warren, Making Credit Safer,

157 U. Pa. L. Rev. 1, 89 (2008).

(28.) Fin. Crisis Inquiry Comm’n, The Financial Crisis Inquiry
Report 76-77, 93 (2011) [hereinafter FCIC Report], available at
http://www.gpoaccess.gov/ecic/fcic.pdf.

(29.) Id. at 93.

(30.) Id.

(31.) Id. at 93-94.

(32.) Engel & McCoy, supra note 24, at 195.

(33.) FCIC Report, supra note 28, at 94; see also Engel &
McCoy, supra note 24, at 195 (describing very limited impact of the
FRB’s 2001 regulation).

(34.) Truth in Lending, 73 Fed. Reg. 44,522 (July 30, 2008).

(35.) FCIC Report, supra note 28, at 22, 95; see also S. Rep. No.
111-176, at 16 (2010) (stating that the Fed’s 2008 rules were
issued “long after the marketplace had shut down the availability
of subprime and exotic mortgage credit”).

(36.) Patricia A. McCoy et al., Systemic Risk Through
Securitization: The Result of Deregulation and Regulatory Failure, 41
Conn. L. Rev. 1327, 1347 (2009); see also Sudeep Reddy, Currents: Fed
Faces Grilling on Consumer-Protection Lapses, Wall St. J., Dec. 2, 2009,
at A22 (reporting that “many lawmakers and consumer advocates”
viewed the Fed’s 2008 rules as “too little too late”
because the Fed’s “ban on deceptive subprime-mortgage
practices, came only after the financial crisis exposed vast regulatory
holes and a sea of loans to homeowners who can’t meet their
payments”).

(37.) Too Big to Fail: Expectations and Impact of Extraordinary
Government Intervention and the Role of Systemic Risk in the Financial
Crisis: Hearing Before Fin. Crisis Inquiry Comm’n, 112th Cong.
190-91 (2010), available at
http://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2010-0902-
transcript.pdf.

(38.) Id. at 191; see also FCIC Report, supra note 28, at 94
(quoting reply by Chairman Bair). I served as a consultant to the FCIC
during 2010.

(39.) See 12 U.S.C. [section][section] 1813(q)(D), 1843,
1844(c)(2)(B) (2006). Under a 1999 statute, the FRB was required to
defer to the primary regulators of functionally-regulated subsidiaries
of BHCs, such as banks, securities broker-dealers, and insurance
companies. McCoy et al., supra note 36, at 1345-46. However, nonbank
mortgage lenders were not functionally-regulated subsidiaries and were
therefore fully subject to the FRB’s supervisory and enforcement
authority. 12 U.S.C. [section][section] 1813(q)(2)(F), 1818, 1843(c);
see also Engel & McCoy, supra note 24, at 199 (“It doesn’t
appear that [the 1999 statute] was what motivated the Fed’s refusal
to examine [BHC] subsidiaries. In fact, the evidence suggests that the
Fed’s failure to conduct routine examinations of subsidiaries
during the subprime boom was a matter of discretion, not a dictate of
the law.”).

(40.) FCIC Report, supra note 28, at 77 (quoting FRB Division of
Consumer and Community Affairs, Consumer Affairs Letter CA 98-1, dated
Jan. 20, 1998).

(41.) Id. at 94.

(42.) Id.

(43.) Greg Ip, Did Greenspan Add to Subprime Woes? Gramlich Says
Ex-Colleague Blocked Crackdown on Predatory Lenders Despite Growing
Concerns, Wall St. J., Jun. 9, 2007, at B1.

(44.) Id.; FCIC Report, supra note 28, at 94-95.

(45.) FCIC Report, supra note 28, at 77, 95.

(46.) Id. at 95 (summarizing Mr. Greenspan’s interview with
the FCIC); see also Binyamin Applebaum, Fed Held Back as Evidence
Mounted on Subprime Loan Abuses, Wash. Post, Sept. 27, 2009, at A1
(characterizing the FRB’s approach as a “hands-off
policy”); Edmund L. Andrews, Fed and Regulators Shrugged as
Subprime Crisis Spread, N.Y. Times, Dec. 18, 2007, at A1 (noting Mr.
Greenspan’s defense of his actions).

(47.) Engel & McCoy, supra note 24, at 198-203 (noting that
nonbank subsidiaries of BHCs “made 17.7%–almost one-fifth–of
higher-priced [mortgage] loans in 2007”).

(48.) Wilmarth, supra note 19, at 1018.

(49.) Id. at 1017.

(50.) Id. at 1018; Engel & McCoy, supra note 24, at 170.

(51.) Wilmarth, supra note 19, at 1017.

(52.) Id. at 1017-18.

(53.) Id. at 1018.

(54.) Engel & McCoy, supra note 24, at 200-02; Wilmarth, supra
note 19, at 1018; FCIC Report, supra note 28, at 107-08.

(55.) Engel & McCoy, supra note 24, at 198-203.

(56.) Id. at 202-03; see also Binyamin Appelbaum, As Subprime
Lending Crisis Unfolded, Watchdog Fed Didn’t Bother Barking, Wash.
Post, Sept. 27, 2009, at A1 (reporting that the fine imposed on
CitiFinancial represented “the Fed’s only public enforcement
action against a lending affiliate”).

(57.) FCIC Report, supra note 28, at 95.

(58.) R. Christian Bruce, Regulatory Reform: Fed to Broaden
Consumer Protection Role Across Nonbank Subsidiaries of Bank Firms, 93
Banking Rep. (BNA) 497 (Sept. 22, 2009) (citing FRB Letter CA 09-8,
dated Sept. 14, 2009, issued by the Fed’s Division of Consumer and
Community Affairs).

(59.) Interagency Guidance on Nontraditional Mortgage Product
Risks, 71 Fed. Reg. 58,609, 58,609 (Oct. 4, 2006); see also FCIC Report,
supra note 28, at 20-22, 172-73 (discussing issuance of federal guidance
for “nontraditional mortgages”). In a typical
“pick-a-pay” option ARM, the borrower was permitted, during an
introductory period of three to five years, to make either (i)
interest-only monthly payments, or (ii) minimum monthly payments that
were even lower than the accrued interest, in which case the unpaid
interest was added to the loan balance. However, the borrower was
normally required to make much higher monthly payments when either (A)
the introductory period ended, or (B) the loan balance increased to 110%
of 120% of the original principal amount. Engel & McCoy, supra note
24, at 34; Wilmarth, supra note 19, at 1022 n.300.

(60.) FCIC Report, supra note 28, at 20 (stating that, during an
interagency investigation in 2005, regulators found that nontraditional
loans accounted for 59% of mortgage originations at Countrywide, 58% at
Wells Fargo, 51% at National City, 31% at Washington Mutual, 26.5% at
CitiFinancial, and 18.3% at Bank of America).

(61.) Statement on Subprime Mortgage Lending, 72 Fed. Reg. 37,569,
37,569 (July 10, 2007). “Hybrid” subprime ARMs were mortgages
that allowed borrowers to pay a low “teaser” interest rate for
an introductory period of two or three years and then required borrowers
to pay much higher interest rates in subsequent years. Engel &
McCoy, supra note 24, at 34; FCIC Report, supra note 28, at 104-06.

(62.) See Interagency Guidance on Nontraditional Mortgage Product
Risk, 71 Fed. Reg. at 58,611; Statement on Subprime Mortgage Lending, 72
Fed. Reg. at 37,571-73.

(63.) Engel & McCoy, supra note 24, at 165-66. A federal
banking agency “may”–but is not required to–require a
depository institution to submit an “acceptable plan” if the
institution fails to comply with guidance on lending practices. 12
U.S.C. [section] 1831p-1(e)(1)(A)(ii) (2006). However, the federal
agency may not bring a formal enforcement proceeding based solely on an
institution’s failure to comply with guidance. Engel & McCoy,
supra note 24, at 165-66.

(64.) Engel & McCoy, supra note 24, at 165-66 (quoting speech
by Mr. Dugan). For discussions of the inadequacy of regulatory guidance,
see McCoy et al., supra note 36, at 1346-47, 13 50-56 (explaining that
the federal agencies’ nonbinding guidance failed to persuade
leading national banks and federal thrifts to correct unsound mortgage
lending practices); Andrews, supra note 46, at A1 (noting that, by the
time regulators published the 2007 guidance for subprime lending,
“more than 30 subprime lenders had gone out of business”).

(65.) Engel & McCoy, supra note 24, at 164-65, 168-69.

(66.) Rachel McTague, Regulatory Reform: Pitt, Wilson: Unified
Regulatory Structure Needed for U.S. Financial Services Industries, 87
Banking Rep. (BNA) 682, 682-83 (Nov. 6, 2006) (summarizing comments made
by Ms. Williams at a meeting held by a commission on capital markets
that was sponsored by the U.S. Chamber of Commerce).

(67.) Stephanie Mencimer, No Account: The Nefarious Bureaucrat
Who’s Helping Banks Rip You Off, New Republic, Aug. 27, 2007, at
14, available at http://www.tnr.com/article/no-account-O (quoting from
interview with Ms. Williams).

(68.) McCoy et al., supra note 36, at 1350-51; Arthur E. Wilmarth,
Jr., Written Testimony on the Credit Card Industry Before the
Subcommittee on Financial Institutions and Consumer Credit of the House
Committee on Financial Services 13-14 (George Washington Univ. Law Sch.
Pub. Law & Legal Theory, Working Paper No. 517, 2007) [hereinafter
Wilmarth Written Testimony], available at
http://ssrn.com/abstract=1729840.

(69.) McCoy et al., supra note 36, at 1351-56; see also infra Part
II.E.5 (discussing failures or near failures of large national banks and
federal thrifts that engaged in reckless subprime and Alt-A lending).

(70.) McCoy et al., supra note 36, at 1346-47, 1355-57; see also
Engel & McCoy, supra note 24, at 165 (contending that the 2006 and
2007 guidelines “allowed for slack regulation and permitted lenders
to argue that compliance was optional”).

(71.) See supra Parts II.A, II.B, II.C (discussing the FRB’s
regulatory failures).

(72.) See supra notes 28-58 and accompanying text (discussing the
FRB’s policy decisions).

(73.) Alan Greenspan, Chairman, Fed. Reserve Bd., International
Financial Risk Management Address before the Council of Foreign
Relations (Nov. 19, 2001), available at
http://www.federalreserve.gov/boarddocs/
speeches/2002/20021119/default.htm.

(74.) Simon Johnson & James Kwak, 13 Bankers: The Wall Street
Takeover and the Next Financial Meltdown 100 (2010).

(75.) Engel & McCoy, supra note 24, at 190-91.

(76.) Id. at 191 -92. For example, Mr. Greenspan declared in 1997
that “the real question is not whether a market should be
regulated. Rather the real question is whether government intervention
strengthens or weakens private regulation.” FCIC Report, supra note
28, at 53-54 (quoting speech by Mr. Greenspan on Feb. 21, 1997).
Similarly, Mr. Greenspan proclaimed in 2004 that “regulations that
are inconsistent with market realities cannot be sustained
indefinitely,” and he praised improvements in private risk
management as “hold[ing] out the hope of a safer and stronger
banking system contributing to a more stable economy.” Alan
Greenspan, Chairman, Fed. Reserve Bd., Banking Address before the
American Bankers Association Annual Convention (Oct. 5, 2004), available
at http:// www.federalreserve.gov/boarddocs/speeches/2004/20041005/default.htm.

(77.) FCIC Report, supra note 28, at 96 (quoting FCIC interview
with Mr. Alvarez); see also Johnson & Kwak, supra note 74, at 103
(stating that “Greenspan dominated the Fed during his tenure, and
his views became close to dogma on the Board of Governors”).

(78.) FCIC Report, supra note 28, at 171 (quoting Fed. Reserve Bank
of New York, Draft, Report on Systemic Risk and Supervision 2 (2009)).

(79.) Id.

(80.) Engel & McCoy, supra note 24, at 173; McCoy et al., supra
note 36, at 1353.

(81.) Binyamin Appelbaum & Ellen Nakashima Banking Regulator
Played Advocate Over Enforcer: Agency Let Lenders Grow Out of Control,
Then Fail, Wash. Post, Nov. 23, 2008, at A1.

(82.) Engel & McCoy, supra note 24, at 176 (quoting from two
speeches by Mr. Reich in 2006); see also id. at 183 (stating that
“[e]ven in spring 2007, with the subprime market in flames, Reich
… vowed ‘to pursue additional regulatory relief, to develop
support for eliminating as many additional items of regulation as is
possible'” and he “went so far as to call greater
regulation ‘extremist behavior'”) (quoting speech by Mr.
Reich in 2007).

(83.) FCIC Report, supra note 28, at 171 (quoting from an interview
with Mr. Ludwig).

(84.) Julie L. Williams, Acting Comptroller of the Currency,
Remarks before an OCC Bankers Outreach Meeting 3 (May 27, 2005),
available at http://
www.occ.treas.gov/news-issuances/speeches/2005/pub-speech 2005-53.pdf.

(85.) Id. at 5.

(86.) Engel & McCoy, supra note 24, at 173 (quoting Mr.
Dugan’s congressional testimony in Sept. 2007).

(87.) McCoy et al., supra note 36, at 1350.

(88.) FCIC Report, supra note 28, at 172-73; Appelbaum &
Nakashima, supra note 81.

(89.) Engel & McCoy, supra note 24, at 176 (quoting from speech
by Mr. Reich in Oct. 2006).

(90.) Eric Nalder, Mortgage System Crumbled While Regulators
Jousted, Seattle Post-Intelligencer, Oct. 11, 2008, at A1.

(91.) Bank Activities and Operations; Real Estate Lending and
Appraisals, 69 Fed. Reg. 1904, 1916-17 (Jan. 13, 2004) (adopting
prohibition codified at 12 C.F.R. [section][section] 7.4008(c), 34.3(c)
(2010)).

(92.) Id. (adopting prohibition codified at 12 C.F.R.
[section][section] 7.4008(b), 34.3(b) (2010)); see also Engel &
McCoy, supra note 24, at 168 (discussing the OCC’s rules).

(93.) Bank Activities and Operations; Real Estate Lending and
Appraisals, 69 Fed. Reg. at 1913 n.55 (stating that “we lack the
authority … to specify by regulation that particular practices, such
as loan ‘flipping’ or ‘equity stripping,’ are unfair
or deceptive…. [T]he OCC does not have rulemaking authority to define
specific practices as unfair or deceptive.”); see also Arthur E.
Wilmarth, Jr., The OCC’s Preemption Rules Exceed the Agency’s
Authority and Present a Serious Threat to the Dual Banking System and
Consumer Protection, 23 Ann. Rev. Banking & Fin. L. 225, 307 (2004)
(contending that the OCC’s rule was “greatly weakened” by
the agency’s disclaimer of any authority to identify specific
lending practices as “unfair or deceptive”).

(94.) Bank Activities and Operations; Real Estate Lending and
Appraisals, 69 Fed. Reg. at 1916, 1917 (adopting 12 C.F.R.
[section][section] 7.4008(b), 34.3(b) (2010)).

(95.) Engel & McCoy, supra note 24, at 168.

(96.) McCoy et al., supra note 36, at 1353.

(97.) Wilmarth Written Testimony, supra note 68, at 14-15; see also
Mencimer, supra note 67 (reporting that from 2000 to 2007 “the OCC
… brought just 11 consumer enforcement actions”).

(98.) Wilmarth Written Testimony, supra note 68, at 14-15; see also
id. at 18 (“During 2004, ten large banks accounted for four-fifths
of all complaints received by the OCC’s Consumer Assistance
Group.”).

(99.) Bank Supervision: Senators Grill Financial Regulators on
Failure to Supervise Banks During Mortgage Crisis, 90 Banking Rep. (BNA)
435 (Mar. 10, 2008) (quoting Mr. Kohn’s testimony during a hearing
before the Senate Banking Committee on Mar. 4, 2008).

(100.) Mr. Cole noted that

   [A] lot of that pushback was given credence ... by the fact that
   [firms]--like Citigroup were earning $4 to $5 billion per quarter
   .... When that kind of money is flowing [in] quarter after quarter
   after quarter, and their capital ratios are way above the minimums,
   it's very hard to challenge.

FCIC Report, supra note 28, at 307 (quoting from interview with Mr.
Cole). Similarly, Richard Spillenkothen, who served as the FRB’s
Director of Bank Supervision between 1991 and 2006, explained that the
FRB’s prevailing deregulatory philosophy made it very difficult for
supervisory officials to impose limits on large financial institutions
until they began to report losses: “Supervisors understood that
forceful and proactive supervision, especially early intervention before
management weaknesses were reflected in poor financial performance,
might be viewed as i) overly-intrusive, burdensome, and heavy-handed,
ii) an undesirable constraint on credit availability, or iii)
inconsistent with the Fed’s public posture.” Id. at 54
(quoting memorandum by Mr. Spillenkothen) (emphasis added).

(101.) See supra notes 59-70 and accompanying text (discussing 2006
and 2007 guidance).

(102.) FCIC Report, supra note 28, at 173 (quoting from interview
with Richard Siddique, former head of credit risk for the FRB’s
Division of Banking Supervision and Regulation); see also id. at 21
(quoting from interview with former FRB Governor Susan Bies, and also
quoting Mr. Siddique’s statement that “[t]he ideological turf
war lasted more than a year, while the number of nontraditional loans
kept growing and growing”).

(103.) Id. (quoting the ABA’s letter of Mar. 29, 2006).

(104.) Id. (quoting the Financial Services Roundtable’s letter
of Mar. 29, 2006).

(105.) Joe Adler, Agencies Propose Hybrid Clampdown: Critics Fret
over Credit Access, Am. Banker, Mar. 5, 2007, at 1 (quoting press
release from the Mortgage Bankers Association); see also Cheyenne
Hopkins, Bankers Find Plenty Not to Like in Loan Guidance, Am. Banker,
May 10, 2007, at 5 (quoting letter from the ABA, stating that the
proposed guidance could restrict “credit options to creditworthy
borrowers who otherwise would benefit from the flexibility afforded by
our banks and savings associations”).

(106.) Johnson & Kwak, supra note 74, at 121-50; FCIC Report,
supra note 28, at 20-24, 93-96, 307-08.

(107.) Johnson & Kwak, supra note 74, at 82-109, 118-44,
147-50; Bar-Gill & Warren, supra note 27, at 85-95; Levitin, supra
note 17, at 148-61; S. Rep. No. 111-176, at 9-17 (2010).

(108.) Arthur E. Wilmarth, Jr., The Dodd-Frank Act: A Flawed and
Inadequate Response to the Too-Big-to Fail Problem, 89 Or. L. Rev. 951,
1011 (2011) (footnotes omitted).

(109.) Johnson & Kwak, supra note 74, at 93.

(110.) Id. at 93-97 (quotes at 97).

(111.) Id. at 97; see also id at 103 (describing how then-IMF Chief
Economist Raghuram Rajan “was met with a torrent of attacks by
Greenspan’s defenders,” including then FRB Vice Chairman
Donald Kohn and former Treasury Secretary Lawrence Summers, when
“Rajan presented a paper [in August 2005] asking in prophetic tones
about whether deregulation and innovation had increased rather than
decreased risk in the financial system”); id. at 7-9, 135-36
(explaining that (i) Brooksley Born, then chair of the Commodity Futures
Trading Commission (CFTC), “provoked furious opposition” when
the CFTC issued a concept paper in May 1998, proposing a study of
whether to strengthen the regulation of over-the-counter derivatives;
and (ii) Ms. Born’s opponents–including FRB chairman Greenspan,
Treasury Secretary Robert Rubin, Treasury Deputy Secretary Lawrence
Summers and SEC chairman Arthur Levitt–persuaded Congress to pass
legislation barring the CFTC from acting on its proposal).

(112.) FCIC Report, supra note 28, at 96-97; Arthur E. Wilmarth,
Jr., Cuomo v. Clearing House: The Supreme Court Responds to the Subprime
Financial Crisis and Delivers a Major Victory for the Dual Banking
System and Consumer Protection 21-22 (George Washington Univ. Law Sch.
Public Law & Legal Theory, Working Paper No. 479, 2010), available
at http://ssrn.com/abstract=1499216. I have served as a consultant to
state financial regulators over the past three decades.

(113.) FCIC Report, supra note 28, at 96.

(114.) Id.

(115.) Id.

(116.) Raphael W. Bostic et al., Mortgage Product Substitution and
State Anti-Predatory Lending Laws: Better Loans and Better Borrowers? 7
n.2 (Univ. Pa. Inst. & Econ., Research Paper No. 09-27, 2009),
available at http://ssrn.com/abstract=1460871; Lei Ding et al., The
Impact of State Anti-Predatory Lending Laws on the Foreclosure Crisis 4
(June 30, 2010) (unpublished manuscript), available at
http://ssrn.com/abstract=1632915.

(117.) Bostic et al., supra note 116, at 24.

(118.) Ding et al., supra note 116, at 18-20.

(119.) Id. at 14-20.

(120.) Wilmarth, supra note 93, at 316 (summarizing House of
Representatives committee document indicating that during 2003 state
officials “performed more than 20,000 investigations in response to
consumer complaints about abusive lending practices, and those
investigations produced more than 4000 enforcement actions”);
Nalder, supra note 90 (reporting that state officials “took 3694
enforcement actions against mortgage lenders and brokers in 2006
alone”).

(121.) Testimony of Illinois Attorney General Lisa Madigan before
the FCIC, Jan. 14, 2010, at 4-6, available at
http://www.fcic.gov/hearings/pdfs/2010-0114-Madigan.pdf [hereinafter
Madigan FCIC Testimony]; Wilmarth, supra note 93, at 316; Nalder, supra
note 90.

(122.) Lending and Investment, 61 Fed. Reg. 50,951 (Sept. 30,
1996).

(123.) Id. at 50,972 (codified at 12 C.F.R. [section] 560.2(a)
(2008)).

(124.) See Wilmarth, supra note 93, at 284-85 (discussing 12 C.F.R.
[section] 560.2).

(125.) See WFS Fin., Inc. v. Dean, 79 F. Supp. 2d 1024, 1028 (W.D.
Wis. 1999) (upholding 1996 OTS regulation extending preemption to
operating subsidiaries of federal thrifts).

(126.) McCoy et al., supra note 36, at 1348-49. The OTS regulation
permitted certain state laws of general applicability, including
contract and tort laws, to apply to federal thrifts if such laws had
only an “incidental” effect on the lending operations of
federal thrifts. Wilmarth, supra note 93, at 285.

(127.) Letter from Carolyn J. Buck, Chief Counsel, Office of Thrift
Supervision, Dep’t of Treasury (Jan. 21, 2003), available at
http://www.OTS.treas.gov/_files/56301.pdf (concluding that federal law
preempted the Georgia Fair Lending Act); Letter from Carolyn J. Buck,
Chief Counsel, Office of Thrift Supervision, Dep’t of Treasury
(Jan. 30, 2003), available at http://www.OTS.treas.gov/_files/56302.pdf
(concluding that federal law preempted the New York Predatory Lending
Law); Letter from Carolyn J. Buck, Chief Counsel, Office of Thrift
Supervision, Dep’t of Treasury (July 22, 2003), available at
http://www.OTS.treas.gov/_files/56305.pdf (concluding that federal law
preempted the New Jersey Predatory Lending Act); Letter from Carolyn J.
Buck, Chief Counsel, Office of Thrift Supervision, Dep’t of
Treasury (Sept. 2, 2003), available at
http://www.OTS.treas.gov/_files/56306.pdf (concluding that federal law
preempted the New Mexico Home Loan Protection Act).

(128.) Letter from Carolyn J. Buck, Chief Counsel, Office of Thrift
Supervision, Dep’t of Treasury (Sept. 2, 2003), available at
http://www.OTS.treas.gov/_files/56306.pdf (noting that “[m]any of
[New Mexico’s statutory provisions] are the same as, or similar to,
provisions of these other states’ predatory lending laws”).

(129.) See State Farm Bank, FSB v. Reardon, 539 F.3d 336, 349 (6th
Cir. 2008) (upholding an OTS order that permitted agents of a federal
thrift to offer mortgage loans in Ohio without complying with
Ohio’s laws governing mortgage brokers).

(130.) Preemption Determination and Order, 68 Fed. Reg. 46,264
(Aug. 5, 2003).

(131.) Bank Activities and Operations; Real Estate Lending and
Appraisals, 68 Fed. Reg. 46,119 (Aug. 5, 2003) (to be codified at 12
C.F.R. pt. 7, 34).

(132.) Bank Activities and Operations; Real Estate Lending and
Appraisals, 69 Fed. Reg. 1904 (Jan. 13, 2004). For a description of the
OCC’s 2004 rules and their similarity to the OTS’s rules, see
Wilmarth, supra note 93, at 227-36, 298-99.

(133.) See Bar-Gill & Warren, supra note 27, at 81-82, 92
(concluding that the “regulation cancels out much state-level
consumer protection law”); McCoy et al., supra note 36, at 1349-50
(discussing the broad preemptive impact of the OCC rule); Wilmarth,
supra note 93, at 233-36 (same).

(134.) Bank Activities and Operations, 69 Fed. Reg. 1895 (Jan. 13,
2004) (to be codified at 12 C.F.R. pt. 7). For a description of this
rule, see Wilmarth, supra note 93, at 228-29.

(135.) See McCoy et al., supra note 36, at 1349-50 (discussing
impact of the preemptive rules issued by the OTS and OCC); see also
Bar-Gill & Warren, supra note 27, at 81-82, 92 (same).

(136.) See Wilmarth, supra note 112, at 22 n.105 (citing OCC
Interpretive Letter No. 1002, May 13, 2004, from Comptroller of the
Currency John D. Hawke, Jr. to Georgia Banking Commissioner David G.
Sorrell).

(137.) See Wilmarth, supra note 93, at 289-92 (explaining that
“the OCC and national banks have used a coordinated litigation
strategy to expand the preemptive reach of the [National Bank
Act]”). An informal survey determined that the OCC filed amicus
briefs in sixty court cases between 1994 and 2006, and that the OCC
supported the positions taken by national banks in all but two of those
cases. Mencimer, supra note 67 (describing results of survey).

(138.) Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735,
739-41 (1996) (discussing the OCC’s adoption of 12 C.F.R. [section]
7.4001(a)). Under 12 U.S.C. [section] 85, a national bank that is
“located” in one state may charge “interest”
permitted by the laws of that state on loans made to residents of other
states, notwithstanding the usury laws of those other states. The
OCC’s regulation at issue in Smiley allowed national banks to treat
late payment fees and certain other charges as “interest” for
purposes of [section] 85. Id. at 740; see also Wilmarth Written
Testimony, supra note 68, at 7-8 (discussing the ability of national
banks, under 12 U.S.C. [section] 85, to “export” interest
rates on loans made to residents of other states).

(139.) Smiley, 517 U.S. at 739-47 (granting deference to the
OCC’s regulation under Chevron U.S.A., Inc. v. Natural Resources
Defense Council, Inc., 467 U.S. 837 (1984)).

(140.) Id. at 741.

(141.) Id. at 740.

(142.) Transcript of Oral Argument at 16-17, Smiley v. Citibank,
No.95-860, 1996 WL 220402 (U.S. Apr. 24, 1996). When Chief Justice
Rehnquist asked counsel for the United States whether he knew of any
rulings by the OCC against national banks, the only example provided by
counsel was that the OCC’s regulation at issue in Smiley allowed
national banks to treat some–but not all–loan-related fees and charges
as “interest” that could be “exported” to borrowers
across state lines under 12 U.S.C. [section] 85. Id at 17 (response by
Irving L. Gornstein, noting that “the banks would like to have all
of [the charges] treated as interest so that they could be
exported”). I am indebted to Alan Morrison, who attended the oral
argument in Smiley, for alerting me to Chief Justice Rehnquist’s
remarks and the laughter in the courtroom that followed.

(143.) See Watters v. Wachovia Bank, N.A., 550 U.S. 1 (2007)
(holding that federal law preempted the application of state mortgage
lending laws to operating subsidiaries of national banks); Nat’l
City Bank of Ind. v. Turnbaugh, 463 F.3d 325 (4th Cir. 2006), cert.
denied, 550 U.S. 913 (2007) (same); Wells Fargo Bank, N.A. v. Bourtris,
419 F.3d 949 (9th Cir. 2005) (same); Wachovia Bank, N.A. v. Burke, 414
F.3d 305 (2d Cir. 2005), cert. denied, 550 U.S. 913 (2007) (same).

(144.) See supra note 143 (listing four preemption cases in which
the OCC supported large national banks).

(145.) See infra notes 195-96 and accompanying text (referring to
forced sales of Wachovia and National City).

(146.) Wilmarth, supra note 112, at 4-5.

(147.) Id. at 5.

(148.) See id. at 5-6, 11-12 (describing legal and factual
background leading to the Supreme Court’s decision in Cuomo v.
Clearing House Ass’n, L.L.C., 129 S. Ct. 2710 (2009)).

(149.) Robert Berner & Brian Grow, They Warned Us: The
Watchdogs Who Saw the Subprime Disaster Coming–and How They Were
Thwarted by the Banks and Washington, Bus. Week, Oct. 20, 2008, at 36,
38, available at, http://legacy.sabrew.info/contest/2008/entries/5334END/ The%20Watchdogs%20Who%20Warned%20Us.pdf.

(150.) Andrew Martin, Does This Bank Watchdog Have a Bite?, N.Y.
Times, Mar. 28, 2010, at BU.

(151.) Madigan FCIC Testimony, supra note 121, at 9.

(152.) Id. at 11.

(153.) Id.; see also infra note 183 and accompanying text (citing
examples of nonbank subprime lenders that sold themselves to national
banks to gain preemptive immunity from state enforcement).

(154.) Madigan FCIC Testimony, supra note 121, at 6 (noting that,
in 2008, Illinois and several other states obtained a large settlement
requiring Countrywide to take remedial actions for past violations of
state consumer protection laws; however, the states were not able to
secure “mandatory injunctive provisions governing
[Countrywide’s] future lending practices” because Countrywide
transferred its mortgage lending operations to its subsidiary federal
thrift).

(155.) Id. at 11; see also Engel & McCoy, supra note 24, at 162
(noting that “in response to the OCC and OTS preemption rules,
state banks and thrifts lobbied regulators for the same hands-off
treatment so they would have competitive parity with their federally
chartered counterparts”).

(156.) See Renee M. Jones, Dynamic Federalism: Competition,
Cooperation and Securities Enforcement, 11 Conn. Ins. L. J. 107, 117-21
(2005) (discussing recent scandals); Wilmarth, supra note 93, at 348-52;
Wilmarth, supra note 19, at 1000-02 (commenting on how the OCC’s
rules undermine the enforcement of consumer protection laws).

(157.) Jones, supra note 156, at 118-21; Stefania A. Di Trolio,
Public Choice Theory, Federalism and the Sunny Side to Blue Sky Laws, 30
Wm. Mitchell L. Rev. 1279, 1281, 1305-07; Wilmarth, supra note 93, at
348-52.

(158.) See supra notes 122-55 and accompanying text (discussing
impact of the OTS’s and OCC’s preemptive rules).

(159.) Engel & McCoy, supra note 24, at 158-61.

(160.) The Dodd-Frank Act abolishes the OTS and transfers its
functions to the other federal banking regulators, effective on July 21,
2011. The OCC will inherit the OTS’s responsibility for regulating
federal thrifts, while the FDIC will assume responsibility for
regulating state-chartered thrifts and the FRB will take over
responsibility for regulating thrift holding companies. See H.R. Rep.
No. 111-517, at 866 (2010) (Conf. Rep.), reprinted in 2010 U.S.C.C.A.N.
722, 723, available at
http://www.gpo.gov/fdsys/pkg/CRPT111hrpt517/pdf/CRPT-111hrpt517.pdf;
Cheyenne Hopkins, On Foreign Soil, Acting OTS Head Criticizes Reform,
Am. Banker, Nov. 18, 2010, at 7; Cheyenne Hopkins, Under New Management,
Thrifts Must Get in Line, Am. Banker, Feb. 4, 2011, at 1.

(161.) Bar-Gill & Warren, supra note 27, at 93-94; Engel &
McCoy, supra note 24, at 158-61; Wilmarth, supra note 93, at 276-77;
Wilmarth, supra note 112, at 20, 23.

(162.) Engel & McCoy, supra note 24, at 158-61; Wilmarth, supra
note 93, at 274-86.

(163.) Jess Bravin & Paul Beckett, Friendly Watchdog: Federal
Regulator Often Helps Banks Fighting Consumers, Wall St. J., Jan. 28,
2002, at A1 (summarizing and quoting from an interview with Mr. Hawke).

(164.) Binyamin Appelbaum, Onetime Cop, Out of Business, N.Y.
Times, July 14, 2010, at B1.

(165.) Engel & McCoy, supra note 24, at 159.

(166.) Wilmarth, supra note 93, at 280-87 (contending that
“[t]he most likely reason for the disintegration of the
state-chartered thrift system is the aggressive preemption campaign that
the [Federal Home Loan Bank Board (FHLBB)] began in the late 1970s and
the OTS continued after assuming the FHLBB’s functions in
1989”).

(167.) S. Rep. No. 111-176, at 16 (2010) (“At a hearing on the
OCC’s preemption rule, Comptroller Hawke acknowledged, in response
to questioning from Senator Sarbanes, that one reason Hawke issued the
preemption rule was to attract additional charters, which helps to
bolster the budget of the OCC.”); see also Wilmarth, supra note 93,
at 275 (observing that “the OCC evidently concluded that an
aggressive preemption campaign–promising freedom from state
regulation–… will persuade large, multistate banks to operate under
national charters”).

(168.) John D. Hawke, Jr., Comptroller of the Currency, Remarks
Before the Women in Housing and Finance 2 (Feb. 12, 2002), available at
http://www.occ.gov/static/news-issuances/speeches/2002/
pub-speech-2002-10.pdf.

(169.) Id. In a contemporaneous interview, Comptroller Hawke
confirmed that preemption “is one of the advantages of the national
charter, and I’m not the least bit ashamed to promote it.”
Bravin & Beckett, supra note 163 (quoting from interview with Mr.
Hawke).

(170.) Bar-Gill & Warren, supra note 27, at 81-83, 92-94
(describing conversions of JP Morgan Chase, HSBC, and Bank of Montreal
from state to national charters in response to the OCC’s adoption
of its 2004 preemption rules).

(171.) Id. at 94.

(172.) Engel & McCoy, supra note 24, at 161.

(173.) Wilmarth, supra note 19, at 1017.

(174.) Engel & McCoy, supra note 24, at 176-80.

(175.) Wilmarth, supra note 19, at 977-78.

(176.) Engel & McCoy, supra note 24, at 221-23.

(177.) Id. at 26.

(178.) FCIC Report, supra note 28, at 150-51, 178, 306, 350-51;
McCoy et al., supra note 36, at 1352-53, 1365-66; Wilmarth, supra note
112, at 26-27.

(179.) U.S. Government Accountability Office, Financial Market
Regulation: Agencies Engaged in Consolidated Supervision Can Strengthen
Performance Measurement and Collaboration, GAO-07-154 (Mar. 2007), at
9-14, 20-22, 25-29 [hereinafter GAO Consolidated Supervision Report
(2007)].

(180.) FCIC Report, supra note 28, at 92, 164; Wilmarth, supra note
19, at 1017-18.

(181.) Wilmarth, supra note 19, at 1017-18.

(182.) Id. at 1018; Engel & McCoy, supra note 24, at 200-02.

(183.) Wilmarth, supra note 112, at 22-23 (citing the sales of
Household to HSBC, Ameriquest (Argent) to Citigroup, and Okoboji
Mortgage to Wells Fargo). In addition, Providian, a major subprime
credit card lender, sold most of its assets to JP Morgan Chase and WaMu
after settling a state enforcement action. Dan Richman, New Acquisition
for WaMu: Providian Deal Aims to Speed Firm’s Credit Card Program,
Seattle Post-Intelligencer, June 7, 2005, at C1; see also Madigan FCIC
Testimony, supra note 121, at 6 (discussing Countrywide’s transfer
of its mortgage lending operations to its federal thrift subsidiary in
order to take advantage of the OTS’s preemption rules).

(184.) David Donald, Who’s Behind the Financial Meltdown?,
Methodology, Center for Pub. Integrity,
http://www.publicintegrity.org/investigations/
economic_meltdown/about_this_project/methodology/ (last visited Apr. 13,
2011). The CPI’s study was based on methodology and supporting data
developed by Chris Mayer of the Columbia Business School and Karen
Pence, a FRB economist. The CPI’s study drew on data from (i)
reports filed by banks, thrifts and other mortgage lenders under the
Home Mortgage Disclosure Act (“HMDA”), (ii) data on subprime
lenders compiled by HUD, and (iii) data collected by private-sector
sources for use in the real estate industry. Id.

(185.) Jonn Dunbar & David Donald, Who’s Behind the
Financial Meltdown?, Article on The Roots of the Financial Crisis: Who
Is to Blame?, Center for Pub. Integrity,
http://www.publicintegrity.org/investigations/economic_meltdown/
articles/entry/1286/ (last visited Apr. 13, 2011) (listing the top
subprime lenders in “The Subprime 25”).

(186.) Id.

(187.) Id.; see also Engel & McCoy, supra note 24, at 159-60,
201-02 (describing Countrywide’s status as a top subprime lender
and its charter conversion); FCIC Report, supra note 28, at 107-08,
172-74 (same).

(188.) Dunbar & Donald, supra note 185.

(189.) Id. While 14 owners of federally-chartered depository
institutions were listed among the top subprime lenders, there was an
overlap in the case of two subprime lenders, because (i) Countrywide was
a national bank until early 2007 and a federal thrift thereafter, until
it was acquired by Bank of America in early 2008, and (ii) First
Franklin was owned by National City until late 2006 and was then owned
by Merrill Lynch until 2008. Id.

(190.) Id. (showing that lenders affiliated with national banks and
federal thrifts accounted for $567 billion of the $972 billion of
subprime loans originated by the top 25 subprime lenders between 2005
and 2007; also noting that the top 25 subprime lenders accounted for 72%
of all subprime loans during that period).

(191.) Preemption and Regulatory Reform: Restore the States’
Traditional Role as “First Responder”, Nat’l Consumer L.
Ctr. 11-13 (2009), available at
http://www.nclc.org/images/pdf/preemption/restore-therole-of-
states-2009.pdf. The NCLC study was based on loan data provided by
Inside Mortgage Finance, a leading mortgage industry publication. Id. at
11 -13 tbls. 1 -3.

(192.) S. Rep. No. 111-176, at 25-26 (2010); H.R. Rep. No. 111-517,
at 866 (2010) (Conf. Rep.), reprinted in 2010 U.S.C.C.A.N. 722, 723; see
also supra note 160 (discussing Dodd-Frank’s transfer of the
OTS’s responsibilities to the OCC, the FRB, and the FDIC).

(193.) Engel & McCoy, supra note 24, at 176-79, 222-23;
Wilmarth, supra note 112, at 29-30; FCIC Report, supra note 28, at 88,
151-52, 177-78, 200-04, 257-59, 305-06, 346, 350-51, 365-66, 382-85;
Appelbaum & Nakashima, supra note 81.

(194.) Engel & McCoy, supra note 24, at 170, 200-02; FCIC
Report, supra note 28, at 107-08, 173-74, 248-50; Steve Mufson, A
Fateful Step for a Banking Giant, Wash. Post, Dec. 5, 2010, at G1; James
R. Hagerty & Joann S. Lublin, Countrywide Deal Driven by Crackdown
Fear, Wall St. J., Jan. 29, 2008, at A3.

(195.) Engel & McCoy, supra note 24, at 169-71, 202-03; FCIC
Report, supra note 28, at 195-200, 263, 302-05, 366-71, 379-82;
Wilmarth, supra note 19, at 978-79, 984-85.

(196.) Engel & McCoy, supra note 24, at 204; see also FCIC
Report, supra note 28, at 308 (concluding that “the banking
supervisors failed to adequately and proactively identify and police the
weaknesses of the banks and thrifts,” and noting that “[l]arge
commercial banks and thrifts, such as Wachovia and IndyMac … had
significant exposure to risky mortgage assets”).

(197.) Engel & McCoy, supra note 24, at 159-63.

(198.) Id. at 163.

(199.) Id.

(200.) Id.

(201.) Id.

(202.) Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. No. 111-203, [section] 1001, 124 Stat. 1376, 1955 (2010).

(203.) Id. [section] 1011(a). For a helpful overview of CFPB’s
authority under Title X, see Michael B. Mierzewski et al., The
Dodd-Frank Act Establishes the Bureau of Consumer Financial Protection
as the Primary Regulator of Consumer Financial Products and Services,
127 Banking L.J. 722 (2010).

(204.) Mierzewski et al., supra note 203, at 724-25; see also
Dodd-Frank [section] 1021(a) (providing that CFPB’s purpose is to
“implement and, where applicable, enforce Federal consumer
financial law” to ensure that markets for consumer financial
products and services are accessible to consumers and are also
“fair, transparent, and competitive”); Id. [section] 1002(14)
(defining “Federal consumer financial law” to include Title X
of Dodd-Frank, 18 federal consumer protection statutes that are
enumerated in Section 1002(12), and certain other laws).

(205.) Dodd-Frank prohibits the Federal Reserve Board (FRB) from
(i) intervening in any CFPB proceeding; (ii) appointing, directing or
removing any CFPB officer or employee; (iii) combining the CFPB or any
of its functions with any other unit of the FRB; or (iv) approving or
reviewing any rule or order of the CFPB or any legislative
recommendation or testimony of the Director or any other officer of
CFPB. Id. [section] 1012(c). Thus, Dodd-Frank “makes clear that the
[CFPB] is to function without any interference by the [FRB].” S.
Rep. No. 111-176, at 161 (2010). The provisions protecting CFPB’s
independence are “modeled on similar statutes governing the
[OCC],” an autonomous bureau located with the Treasury Department.
Id.

(206.) Dodd-Frank requires the Fed to provide funds for CFPB’s
operations in an amount determined by CFPB’s Director to be
“reasonably necessary” to carry out the CFPB’s
authorities in view of other funding available to the CFPB, up to the
following maximum limits: (i) 10% of the Fed’s total operating
expenses in fiscal year 2011, (ii) 11% of such expenses in fiscal year
2012, and (iii) 12% of such expenses in each subsequent fiscal year.
Dodd-Frank [section] 1017(a). Congress concluded that “the
assurance of adequate funding [from the Fed], independent of the
Congressional appropriations process, is absolutely essential to the
independent operations of any financial regulator.” S. Rep. No.
111-176, at 163 (2010). Dodd-Frank will require the Fed to provide
approximately $500 million of funding to CFPB in fiscal year 2013 and
subsequent years. Id. at 164 (graph).

(207.) Dodd-Frank [section] 1011(b)-(c).

(208.) Id. [section] 1022(b)(1).

(209.) Id. [section] 1031(a)-(b). For a recent analysis of the
potential scope of CFPB’s authority to adopt rules prohibiting
UDAAP, see Carey Alexander, Abusive: Dodd-Frank Section 1031 and the
Continuing Struggle to Protect Consumers 13-35 (St. John’s Leg.
Stud. Res. Paper No. 10-193, Dec. 2010), available at
http://ssrn.com/abstract=1719600.

(210.) Dodd-Frank [section] 1032(a).

(211.) The FSOC has authority to set aside any CFPB regulation if
the FSOC determines by a vote of two-thirds of its members that the
regulation would “put the safety and soundness of the United States
banking system or the stability of the financial system of the United
States at risk.” Id. [section] 1023(a). The FSOC has 10 voting
members (including the heads of nine federal financial agencies and an
independent member with insurance experience) and five non-voting
members. Id. [section] 111(b). In order to initiate the FSOC’s
review of a CFPB regulation, a member of the FSOC must petition the FSOC
to set aside the regulation. Id. [section] 1023(a)-(b). It is not clear
whether a non-voting member of the FSOC is qualified to file or vote on
such a petition.

(212.) Id. [section] 1036(a)(1)(B). As discussed below, Title
X’s statutory ban on UDAAP may be enforced against state-chartered
or state-licensed providers of financial services by state attorneys
general as well as the CFPB. See infra notes 235-36 and accompanying
text.

(213.) Depository institutions with total assets of $10 billion or
less will be examined by federal banking agencies to assess their
compliance with consumer financial protection laws. Mierzewski et al.,
supra note 203, at 731-32. CFPB has authority (i) to obtain reports from
smaller depository institutions, (ii) to include one of CFPB’s
examiners on the examination teams for such depository institutions, and
(iii) to provide input to the primary regulations of such institutions
with regard to the scope and conduct of examinations, the contents of
examination reports and examination ratings. Dodd-Frank [section] 1026.

(214.) Dodd-Frank [section][section] 1002(12), 1031, 1036(a)(1)(B),
1052-55. Section 1031 of Dodd-Frank imposes strict limits on CFPB’s
authority to adopt rules declaring acts or practices to be
“unfair” or “abusive” and therefore unlawful under
CFPB’s UDAAP authority. Id. [section] 1031(c)-(e). In addition,
CFPB may not bring an administrative enforcement hearing to enforce an
enumerated federal consumer financial law to the extent that the law in
question specifically limits CFPB’s authority to do so. Id.
[section] 1053(a)(2).

(215.) Id. [section][section] 1052-56; see Mierzewski et al., supra
note 203, at 732-35 (describing CFPB’s enforcement powers). CFPB
has authority to represent itself in the Supreme Court if it submits a
request to the Attorney General and the Attorney General concurs or
acquiesces in that request. Dodd-Frank [section] 1054(e).

(216.) Dodd-Frank [section][section] 1053-55. CFPB may not impose
exemplary or punitive damages. Id. [section] 1055(a)(3).

(217.) See id. [section] 1002(5)-(6), (26) (defining “consumer
financial product or service,” “covered person,” and
“service provider”); Mierzewski et al., supra note 203, at 726
(describing persons, products, and services that are regulated under
Title X).

(218.) See Dodd-Frank [section][section] 1027, 1029 (exempting
designated industries from CFPB’s jurisdiction); see also H.R. Rep.
No. 111-517, at 875 (2010) (Conf. Rep.), reprinted in 2010 U.S.C.C.A.N.
722, 731 (discussing statutory exceptions to CFPB’s jurisdiction);
S. Rep. No. 111-176, at 160, 169-71 (2010) (same); Mierzewski et al.,
supra note 203, at 727-28 (same).

(219.) Dodd-Frank [section] 1041(a)(1).

(220.) Id. [section] 1041(a)(2); See S. Rep. No. 111-176, at 174
(2010) (“Section 1041 confirms that the [Title X] will not preempt
State law if the State law provides greater protection for
consumers.”).

(221.) Dodd-Frank [section] 1041(a)(2).

(222.) 12 U.S.C. [section][section] 1-216b (2006).

(223.) Id. [section][section] 1461-70.

(224.) See infra Part III.D (discussing Dodd-Frank’s
establishment of new preemption standards under the NBA and HOLA).

(225.) See infra notes 219-21 and accompanying text (describing the
limited preemption of state laws under Section 1041 of Dodd-Frank).

(226.) For an analysis of the important distinction–in terms of
preemptive effect on the states–between federal statutes that establish
“floors” and those that create “ceilings” of
regulatory standards, see Buzbee, supra note 16, at 1564-72 (describing
the difference between (i) federal environmental laws that establish
“regulatory floors” and allow more stringent state
requirements and (ii) federal energy and hazardous waste laws that
create “preemptive ceilings” and prohibit any additional
regulation by the states).

(227.) Like the CFP Act, ECOA, EFTA, and FDCPA provide that state
laws are not “inconsistent” with federal law, and are
therefore not preempted, if state laws provide “greater”
protection to consumers than the protection provided by federal law. 15
U.S.C. [section] 1692n (2006) (FDCPA); id. [section] 1693d(f) (ECOA);
id. [section] 1693q (EFTA). Similarly, courts have held that
“states remain free to impose greater protections for
borrowers” than the safeguards created by TILA. Williams v. First
Gov’t Mortg. & Investors Corp., 176 F.3d 497, 500 (D.C. Cir.
1999); accord Black v. Financial Freedom Senior Funding Corp. 112 Cal.
Rptr. 2d 445, 461 (Cal. Ct. App. 2001).

(228.) S. Rep. No. 111-176, at 174 (2010).

(229.) Dodd-Frank [section] 1041(c).

(230.) S. Rep. No. 111-176, at 175 (2010).

(231.) Dodd-Frank [section] 1042(a)(1).

(232.) Id.

(233.) Id.

(234.) Id. [section] 1042(a)(2).

(235.) Lauren Saunders, The Role of the States Under the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010, Nat’l
Consumer L. Ctr. 2-3 (Dec. 2010), http://www.nclc.org/images/pdf/
legislation/dodd-frank-role-of-the-states.pdf (citing Dodd-Frank
[section][section] 1036(a)(1)(B), 1042(a)(1)-(2)).

(236.) Id.

(237.) The AG is required to give CFPB its complaint before
initiating its enforcement action or, if “prior notice is not
practicable, … immediately upon instituting the action.”
Dodd-Frank [section] 1042(b)(1)(B).

(238.) Id. [section] 1042(b)(2).

(239.) Saunders, supra note 235, at 3-4 (describing the right of
state AGs under certain state and federal laws to enforce the CFP Act or
CFPB’s rules against smaller banks, thrifts, and credit unions
(i.e., those with assets under $10 billion) and also against auto
dealers and certain merchants, retailers, and sellers, notwithstanding
CFPB’s lack of enforcement jurisdiction over any of those persons).

(240.) Id. at 3 (emphasis in original).

(241.) Dodd-Frank [section] 1042(d).

(242.) See supra Part II.E.2 (discussing the preemption rules
adopted by the OTS and the OCC).

(243.) See infra Part III.D.8 (explaining why general state laws
should presumptively apply to national banks and federal thrifts).

(244.) Dodd-Frank [section][section] 1044, 1045, 1047(a) (enacting
new preemption standards for national banks), id. [section][section]
1046, 1047(b) (enacting new preemption standards for federal thrifts).
The effective date for these provisions is July 21, 2011, which the
Secretary of the Treasury has established as the “designated
transfer date.” Id [section] 1048; see 75 Fed. Reg. 57,252 (Sept.
20, 2010).

(245.) Dodd-Frank [section][section] 1044, 1045, 1047(a) (enacting
new [section] 5136C of the NBA) (to be codified at 12 U.S.C. [section]
25b).

(246.) Id. [section][section] 1046, 1047(b) (enacting new section 6
of HOLA (to be codified at 12 U.S.C. [section] 1465)).

(247.) See id. [section] 1046 (enacting new section 6(a) of HOLA,
which provides that any preemption determinations made by a court or the
responsible agency under HOLA “shall be made in accordance with the
laws and legal standards applicable to national banks regarding the
preemption of State law”).

(248.) Id. [section][section] 1044, 5136(c)(a)(2).

(249.) See, e.g., In re Ocwen Loan Servicing, LLC Mortg. Servicing
Litig., 491 F.3d 638, 643-46 (7th Cir. 2007) (affirming the
applicability of general state laws to federal thrifts under HOLA);
Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549, 555-56 (9th
Cir. 2010) (recognizing the applicability of general state laws to
national banks under the NBA); see also Jefferson v. Chase Home Fin.,
No. C 06-6510 TEH, 2008 WL 1883484, at *10-15 (N.D. Cal. Apr. 29, 2008);
Mwantembe v. TD Bank, N.A., 669 F. Supp. 2d 545, 553-54 (E.D. Pa. 2009);
Young v. Wells Fargo & Co., 671 F. Supp. 2d 1006, 1018-22 (S.D. Iowa
2009); Augustin v. PNC Fin. Servs. Group, Inc., 707 F. Supp. 2d 1080,
1092-97 (D. Hawaii 2010); Guttierez v. Wells Fargo Bank, N.A., 730 F.
Supp. 2d 1080, 1130-33 (N.D. Cal. 2010) (each holding that general state
laws applied to national banks and were not preempted by the NBA).

(250.) Dodd-Frank [section] 1044 (to be codified at 12 U.S.C.
[section] 25b(b)(1)(A)).

(251.) Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25
(1996).

(252.) Id. (to be codified at 12 U.S.C. [section] 25b(b)(1)(B));
see infra notes 255-70 and accompanying text (discussing the Barnett
Bank standard for preemption).

(253.) Dodd-Frank [section] 1044 (to be codified at 12 U.S.C.
[section] 25(b)(1)(C)). See infra notes 275-82 and accompanying text
(discussing the types of federal laws that are likely to be included
under the third category).

(254.) Cf. McClellan v. Chipman, 164 U.S. 347, 360-61 (1896)
(holding that national banks were required to comply with a
“general and undiscriminating law” enacted by Massachusetts to
prevent insolvent debtors from providing preferences to creditors).

(255.) Dodd-Frank [section] 1044 (to be codified at 12 U.S.C.
[section] 25b(b)(1)(B)).

(256.) Id.; see Barnett Bank, 517 U.S. at 33 (upholding the
states’ authority “to regulate national banks where … doing
so does not prevent or significantly interfere with the national
bank’s exercise of its powers”).

(257.) Barnett Bank, 517 U.S. at 33.

(258.) Id.

(259.) Gramm-Leach-Bliley Act, Pub. L. No. 106-102, [section]
104(d)(2)(A), 113 Stat. 1341, 1353 (codified at 15 U.S.C. [section]
6701(d)(2)(A) (2006)).

(260.) Id.

(261.) See H.R. Rep. No. 106-434, at 156-57 (1999) (Conf. Rep.),
reprinted in 1999 U.S.C.C.A.N. 245, 251

(explaining that under the 1999 statute, “[w]ith respect to
insurance sales, solicitations, and cross-marketing, States may not
prevent or significantly interfere with the activities of depository
institutions or their affiliates, as set forth in Barnett Bank of Marion
County N.A. v. Nelson, 517 U.S. 25 (1996)”).

(262.) See H. R. Rep. No. 111-517, at 875 (2010), reprinted in 2010
U.S.C.C.A.N. 722, 731; S. Rep. No. 111-176, at 175-76 (2010).

(263.) Monroe Retail, Inc. v. RBS Citizens, N.A., 589 F.3d 274, 283
(6th Cir. 2009).

(264.) Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25,
28-38 (1996).

(265.) Id. at 34-35.

(266.) Id. at 31-35.

(267.) Franklin Nat’l Bank v. New York, 347 U.S. 373 (1954).
See also Barnett Bank, 517 U.S. at 33 (referring to Franklin as “a
case quite similar to this one”).

(268.) Franklin, 347 U.S. at 374.

(269.) Id. at 375-76.

(270.) Id. at 377-78.

(271.) 15 U.S.C. [section][section] 78j(b), 78n(a).

(272.) In Basic, Inc. v. Levinson, the Court adopted, for purposes
of Section 10(b) of the 1934 Act, a “materiality” standard
that requires a plaintiff shareholder to show “a substantial
likelihood that the disclosure of the omitted fact would have been
viewed by the reasonable investor as having significantly altered the
‘total mix’ of information made available.” Basic, Inc.
v. Levinson, 485 U.S. 224, 231-32 (1988) (emphasis added) (quoting TSC
Indus., Inc. v. Northway, 426 U.S. 438, 449 (1976) (adopting same
materiality standard under Section 14(a)). The Court also held that
“[a]n omitted fact is material if there is a substantial likelihood
that a reasonable shareholder would consider it important in deciding
how to vote.” Id. at 231 (emphasis added) (quoting TSC, 426 U.S. at
449).

Similarly, in Virginia Bankshares, Inc. v. Sandberg, the Court held
that “liability under [Section] 14(a) must rest not only on
deceptiveness but on materiality as well (i.e., it has to be significant
enough to be important to a reasonable investor deciding how to
vote.” Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1097
(1991) (emphasis added). The Court concluded that a misleading statement
in shareholder proxy documents concerning the reasons why a
corporation’s board of directors supported a proposed merger
satisfied the test of materiality under Section 14(a). Id. at 1097-98.
The Court explained that a “shareowner faced with a proxy request
will think it important to know the directors’ beliefs about the
course they recommend and their specific reasons for urging the
stockholders to embrace it.” Id. at 1091 (emphasis added).

(273.) Robertson v. Methow Valley Citizens Council, 490 U.S. 332,
349 (1989). As the Court pointed out in Robertson, NEPA requires a
federal agency to prepare an environmental impact statement with respect
to any “major” proposal “significantly affecting the
quality of the human environment.” Id. at 348 (emphasis added)
(quoting 42 U.S.C. [section] 4332(C)).

(274.) Id. at 349.

(275.) Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. No. 111-203, [section] 1044, 124 Stat. 1376, 2015 (2010)
(enacting [section] 5136C(b)(1)(C) of the NBA).

(276.) Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25
(1996) (discussing 12 U.S.C. [section] 92, which gives national banks
the power to sell insurance in small towns); see also U.S. Nat’l
Bank of Or. v. Indep. Ins. Agents of Am., Inc., 508 U.S. 439, 455-63
(1993) (holding that Section 92 was originally enacted in 1916 as part
of the Federal Reserve Act, not the NBA).

(277.) See Franklin Nat’l Bank v. New York, 347 U.S. 373,
375-77 (1954) (discussing a provision of the Federal Reserve Act that
authorized national banks to accept savings deposits).

(278.) Act of Dec. 23, 1913, ch. 6, [section] 24 (codified as
amended at 12 U.S.C. [section] 371). For references to Section 24 in
Dodd-Frank, see Dodd-Frank Section 1044 (to be codified at 12 U.S.C.
[section][section] 25(b)(2), (b)(5)), and Section 1045 (to be codified
at 12 U.S.C. [section] 25b(h)(2)).

(279.) S. Rep. No. 111-176, at 15-17 (2010); see also supra Part II
(describing how regulatory failures by federal banking agencies
contributed to the severity of the financial crisis).

(280.) S. Rep. No. 111-176, at 16-17; see also supra Part II.E.1,
II.E.2 (discussing how the OTS’s and OCC’s preemptive
regulations interfered with the states’ ability to stop predatory
mortgage lending).

(281.) Barnett Bank, 517 U.S. at 33. To make clear its deliberate
choice of the “prevent or significantly interferes with”
preemption standard for any case involving an alleged conflict between
state law and a federal law conferring national bank powers, the Court
restated the same standard in synonymous terms in the same paragraph of
its opinion. Id. The Court said that “normally Congress would not
want States to forbid, or to impair significantly, the exercise of a
power that Congress explicitly granted.” Id. (emphasis added).

(282.) The conference and Senate committee reports on Dodd-Frank
confirm that the Barnett Bank standard is the governing test in all
cases where it is alleged that state consumer financial laws
“prevent or significantly interfere with national banks’
exercise of their powers.” H.R. Rep. No. 111-517, at 875 (2010)
(Conf. Rep.), reprinted in 1990 U.S.C.C.A.N. 722, 731; see also S. Rep.
No. 111-176, at 175-76 (2010).

(283.) Dodd-Frank [section] 1044. Section 5136C (b)(6) requires
that each preemption determination issued by the OCC must be made by the
Comptroller of the Currency and may not be delegated to any other
officer or employee of the agency. Id. (enacting [section] 5136C(b)(6)).

(284.) Under a 1994 statute, the OCC is required to follow
notice-and-comment procedures before issuing any interpretive rule or
opinion letter concluding that federal law preempts state law in the
areas of community reinvestment, consumer protection, fair lending or
intrastate branching. 12 U.S.C. [section] 43(a) (1994). The OCC is also
required to publish the final interpretive rule or opinion letter in the
Federal Register. Id. [section] 43(b). Notice-and-comment procedures are
not required, however, if the OCC or the courts have previously decided
preemption issues that are essentially identical to those covered in the
interpretive rule or opinion letter. Id. [section] 43(c).

The OCC will be required to comply with the requirements of Section
43 when it issues preemption determinations that are subject to
Dodd-Frank and also cover one of the four subject areas enumerated in
Section 43. However, any OCC preemption determination that is subject to
Dodd-Frank must be issued in the form of a regulation or order,
notwithstanding the permissibility of opinion letters under Section 43.
See Dodd-Frank [section] 1044 (to be codified at 12 U.S.C. [section]
25b(b)(1)(B)) (requiring that “any preemption determination [by the
OCC] under this subparagraph” must be made “by regulation or
order”).

(285.) Dodd-Frank [section] 1044 (to be codified at 12 U.S.C.
[section] 25(b)(1)(B)).

(286.) Id. (to be codified at 12 U.S.C. [section] 25b(b)(3)(A)).

(287.) Id. (to be codified at 12 U.S.C. [section] 25(b)(3)(B)).

(288.) Id. (to be codified at 12 U.S.C. [section] 25b(c)).

(289.) Id. (to be codified at 12 U.S.C. [section] 25b(g)).

(290.) Dodd-Frank [section] 1044 (to be codified at 12 U.S.C.
[section] 25b(d)(1)).

(291.) Id.

(292.) Id.; see also supra note 284 (discussing 12 U.S.C. [section]
43).

(293.) Dodd-Frank [section] 1044 (to be codified at 12 U.S.C.
[section] 25b(d)(2)).

(294.) Id. (to be codified at 12 U.S.C. [section] 25(b)(4)).

(295.) See Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S.
25, 31 (1988) (stating that “[i]n this case we must ask whether or
not the Federal and State Statutes are in ‘irreconcilable
conflict'”).

(296.) Dodd-Frank [section] 1044 (to be codified at 12 U.S.C.
[section] 25b(b)(5)(A)).

(297.) Skidmore v. Swift & Co., 323 U.S. 134 (1944). See
Saunders, supra note 235, at 6 (explaining that Dodd-Frank requires
courts reviewing challenges to OCC preemption determinations to apply
“the less deferential Skidmore standard”) (emphasis in
original; footnote omitted).

(298.) United States v. Mead Corp., 533 U.S. 218, 221 (2001).

(299.) Id. at 228 (quoting Skidmore, 323 U.S. at 140).

(300.) Chevron U.S.A., Inc. v. Natural Def. Council, Inc., 467 U.S.
837 (1984).

(301.) Mead, 533 U.S. at 229.

(302.) Wilmarth, supra note 112, at 38-39 (footnote omitted).

(303.) Gregory v. Ashcroft, 501 U.S. 452 (1991).

(304.) Wilmarth, supra note 112, at 39.

(305.) Id. at 38-39.

(306.) Id. at 37.

(307.) Id. See Cuomo v. Clearing House Ass’n, LLC, 129 S. Ct.
2710, 2733 (2009) (Thomas, J., dissenting in part) (stating that, under
Chevron, the Supreme Court was required “only to decide whether the
construction adopted by the [OCC] is unambiguously foreclosed by the
statute’s text”).

(308.) Wilmarth, supra note 112, at 1, 6-12, 16-19, 44-46
(explaining the reasons why the majority in Cuomo refused to defer to
the OCC under Chevron and instead struck down the OCC’s preemptive
regulation).

(309.) Section 5136C(b)(5)(B) provides that, except with regard to
preemption determinations, “nothing in this section shall affect
the deference that a court may afford to the [OCC] in making
determinations regarding the meaning or interpretation of [the NBA] or
other Federal laws.” Dodd-Frank [section] 1044 (enacting [section]
5136C(b)(5)(B) of the NBA). Thus, the OCC remains free to invoke Chevron
in support of its rulings that do not involve preemption determinations.
Id.

(310.) Wilmarth, supra note 112, at 40; see also id. at 35-36
(suggesting that Skidmore deference is consistent with “the
judiciary’s responsibility to ensure that preemption issues are
resolved in accordance with constitutional and statutory limits on
federal power”).

(311.) Id. (to be codified at 12 U.S.C. [section] 25b(b)(2)).

(312.) Watters v. Wachovia Bank, N.A., 550 U.S. 1 (2007).

(313.) Id. at 15-21. For authorities concluding that Dodd-Frank
overrules the holding in Watters, see Saunders, supra note 235, at 5;
Nancy L. Perkins & Beth S. DeSimone, Has Financial Regulatory Reform
Materially Altered the Preemption Landscape for Federally Chartered
Institutions?, 127 Banking L.J. 759, 761 (2010). See also supra note 244
(explaining that Title X of Dodd-Frank takes effect on July 21, 2011).

(314.) Saunders, supra note 235, at 5; Perkins & DeSimone,
supra note 313, at 761; see also Cuomo v. Clearing House Ass’n, 129
S. Ct. 2710, 2717 (2009) (explaining that “the sole question [in
Watters] was whether operating subsidiaries of national banks enjoyed
[preemptive] immunity from state visitation. The opinion addresses and
answers no other question.”).

(315.) Dodd-Frank [section] 1044 (to be codified at 12 U.S.C.
[section] 25b(e)).

(316.) Compare id. with Dodd-Frank [section] 1044 (to be codified
at 12 U.S.C. [section] 25b(b)(2)).

(317.) Id. [section] 1045 (enacting [section] 5136(h) of the NBA).

(318.) See, e.g., Pacific Capital Bank, N.A. v. Connecticut, 542
F.3d 341, 353 (2d Cir. 2008) (holding that the NBA preempted the
application of a state law to an agent of a national bank); SPGGC,
L.L.C. v. Ayotte, 488 F.3d 525, 536 (1st Cir. 2007) (same).

(319.) See 12 C.F.R. [section][section] 34.4, 7.4007, 7.4008,
7.4009 (2010). For a detailed description of the OCC’s 2004
preemption rules, see Wilmarth, supra note 93, at 227-28, 233-36,
298-99, 316-17.

(320.) Id. at 233 (describing the OCC’s 2004 rules and quoting
Bank Activities and Operations; Real Estate Lending and Appraisals, 69
Fed. Reg. 1904, 1916-17 (Jan. 13, 2004)).

(321.) See Bank Activities and Operations; Real Estate Lending and
Appraisals, 69 Fed. Reg. at 1910 (quoting Barnett Bank’s adoption
of the “prevent or significantly interfere with” standard, but
asserting that the OCC’s “obstruct, impair, or condition”
would “better convey the range of effects on national bank powers
that the [Supreme] Court has found to be impermissible”).

(322.) Id.

(323.) Id.

(324.) Wilmarth, supra note 93, at 233-36, 316-17.

(325.) 12 C.F.R. [section][section] 7.4007(c), 7.4008(e),
7.4009(c)(2), 34.4(b) (2010).

(326.) Bank Activities and Operations; Real Estate Lending and
Appraisals, 69 Fed. Reg. at 1912; see also id. at 1913 (reiterating the
“legal infrastructure” theory of preemption). The OCC relied
on the same theory in a parallel rulemaking that preempted state
officials from exercising “visitorial powers” over national
banks. The OCC identified non-preempted state laws as those establishing
“the legal infrastructure that surrounds and supports the ability
of national banks–and others–to do business.” Bank Activities and
Operations, 69 Fed. Reg. 1896 (Jan. 13, 2004). The OCC further declared,
“[T]hese [non-preempted] state laws provide a framework for a
national bank’s ability to exercise powers granted under Federal
law; they do not obstruct or condition a national bank’s exercise
of those powers.” Id.

(327.) See Wilmarth, supra note 93, at 235-36, 316-17 (describing
the sweeping preemptive claims asserted by the OCC in the preamble to
its 2004 preemption rules).

(328.) Id. at 236, 317.

(329.) Cuomo v. Clearing House Ass’n, 129 S. Ct. 2710 (2009).

(330.) Id. at 2719-20. In Cuomo the Supreme Court rejected the
OCC’s invocation of its “legal infrastructure” doctrine
in support of another preemption rule, which attempted to bar state
officials from bringing any actions to enforce state laws against
national banks. See id. at 2719-20 (quoting and discussing Bank
Activities and Operations, 69 Fed. Reg. 1895, 1896 (2004)). The Court
held that the OCC lacked authority to prevent state attorneys general
from bringing judicial proceedings to enforce non-preempted state laws
against national banks. Id. at 2720-22.

(331.) S. Rep. No. 111-176, at 175 (2010) (emphasis added).

(332.) H.R. Rep. No. 111-517, at 875 (2010) (Conf. Rep.), reprinted
in 2010 U.S.C.C.A.N. 722, 731 (emphasis added).

(333.) Cheyenne Hopkins, Preemption After Dodd-Frank May Not Be As
Weak As You Heard, Am. Banker, Mar. 15, 2011, at 1 (quoting (i) comment
by Robert Cook that “[t]he substance of federal preemption analysis
hasn’t changed at all,” and (ii) statement by Howard Cayne
that “Congress made no change to preemption as it applies to
national banks”).

(334.) See supra note 244 and accompanying text (explaining that
Title X of Dodd-Frank takes effect on July 21, 2011).

(335.) Dodd-Frank [section] 1044 (to be codified at 12 U.S.C.
[section][section] 25b(b)(1)(B), (b)(1)(B), (b)(3)).

(336.) Id. (to be codified at 12 U.S.C. [section] 25b(c)).

(337.) Compare id. (to be codified at 12 U.S.C. [section]
25b(b)(1)(B), (b)(3)) (establishing new preemption standards under the
NBA) with 12 C.F.R. [section][section] 7.4007(b), 7.4008(d), 7.4009(b),
34.4(a) (2010) (OCC regulations declaring broad preemptions of general
categories of state laws instead of providing an individualized list of
state statutes and regulations to be preempted).

(338.) Bank Activities and Operations; Real Estate Lending and
Appraisals, 69 Fed. Reg. 1911 (Jan. 13, 2004).

(339.) Dodd-Frank [section] 1044 (to be codified at 12 U.S.C.
[section] 25b(c)).

(340.) Bank Activities and Operations; Real Estate Lending and
Appraisals, 69 Fed. Reg. at 1908.

(341.) See supra Part III.D.2.d (discussing [section][section]
5136C(b)(2), (e), (h)).

(342.) See Investment Securities: Bank Activities and Operations;
Leasing, 66 Fed. Reg. 34,784-34,790 (July 2, 2001) (adopting 12 C.F.R.
[section] 7.4006 (2008)).

(343.) Watters v. Wachovia Bank, N.A., 550 U.S. 1 (2007).

(344.) Saunders, supra note 235, at 5 (explaining that
“Dodd-Frank ends preemption for bank operating subsidiaries by
reversing Watters v. Wachovia Bank and the regulation Watters
upheld”) (footnote omitted); Perkins & DeSimone, supra note
313, at 761 (agreeing that Dodd-Frank “effectively reverses the
holding of Watters”); see also S. Rep. No. 111-176, at 176 (2010)
(explaining that, under Dodd-Frank, “State law applies to
State-chartered nondepository institution subsidiaries, affiliates, and
agents of national banks, other than entities that are themselves
chartered as national banks”).

(345.) Hopkins, supra note 333 (summarizing comments by unnamed
“preemption advocates”).

(346.) Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. No. 111-203, [section] 1044, 124 Stat. 1376, 2015 (2010) (to be
codified at 12 U.S.C. [section] 25b(b)(1)) (emphasis added).

(347.) See S. Rep. No. 111-176, at 175 (2010) (explaining that
“Section 1044 amends the [NBA] to clarify the preemption standard
relating to State consumer financial laws as applied to national
banks,” and “this section sets out three circumstances under
which a State consumer financial law can be preempted”).

(348.) Dodd-Frank [section] 1048; see also supra note 244
(explaining that the effective date for Dodd-Frank’s new preemption
standards is July 21, 2011).

(349.) Dodd-Frank [section] 1044 (to be codified at 12 U.S.C.
[section] 25b(f)).

(350.) Id.

(351.) S. Rep. No. 111-176, at 176.

(352.) See 12 C.F.R. [section] 7.4001 (2010) (defining the meaning
of “interest” for purposes of 12 U.S.C. [section] 85 and the
authority of each national bank to charge “interest” based on
the law of the state where the bank is “located”). Because the
term “interest” is not defined in 12 U.S.C. [section] 85,
section 5136(f)’s explicit preservation of the “meaning of
‘interest'” is obviously intended to preserve the
validity of the OCC’s definition of “interest” in 12
C.F.R. [section] 7.4001(a). See generally Elizabeth R. Schiltz, The
Amazing, Elastic, Ever-Expanding Exportation Doctrine and Its Effect on
Predatory Lending Regulation, 88 Minn. L. Rev. 518 (2004) (providing a
comprehensive analysis of the “most favored lender” and
“exportation” doctrines under 12 U.S.C. [section] 85).

(353.) See infra note 356 (describing two canons of statutory
construction that support the foregoing conclusion).

(354.) Dodd-Frank [section] 1043 (to be codified at 12 U.S.C.
[section] 5553).

(355.) S. Rep. No. 111-176, at 175 (2010) (emphasis added). The
scope of [section] 1043’s grandfather clause is not entirely clear.
For example, it is not clear whether a pre-2010 contract made by a
national bank would continue to receive grandfathered treatment under
Section 1043 (and would continue to be governed by the OCC’s 2004
preemption rules) if that contract is modified in any way after July 21,
2010.

(356.) As shown above, Dodd-Frank’s carve-outs permit the
OCC’s existing preemption rules to have continued application under
two narrowly limited circumstances. In view of those carve-outs, the
canon of statutory construction known as expressio unius est exclusio
alterius supports the conclusion that Congress did not intend to
preserve the OCC’s existing preemption rules in any other area
unless those rules conform to Dodd-Frank’s new preemption
standards. See First Nat’l Bank in St. Louis v. Missouri, 263 U.S.
640, 657-58 (1924) (holding, in view of federal statutes granting
branching permission to national banks only in carefully limited
circumstances, that national banks did not have authority to establish
branches under any other circumstances); Indep. Ins. Agents of Am., Inc.
v. Hawke, 211 F.3d 638, 644-45 (D.C. Cir. 2000) (holding, based in part
on the expressio unius canon, that a federal statute allowing national
banks to sell insurance in towns under 5000 provided compelling evidence
of Congress’ intent not to allow national banks to sell insurance
at other locations). The canon against “surplusage” leads to
the same conclusion. The two special carve-outs in Dodd-Frank would be
rendered “meaningless,” in violation of that canon, if the OCC
were allowed to retain all of its existing preemption rules despite
their nonconformity with Dodd-Frank’s new preemption standards.
Hawke, 211 F.3d at 643-45; see also Arkansas Best Corp. v. Comm’r,
485 U.S. 212, 218 (1988) (refusing to interpret a federal tax statute
“in a manner that makes surplusage of [five special] statutory
exclusions”).

(357.) Hopkins, supra note 333.

(358.) In Cuomo v. Clearing House Association, the Court
invalidated 12 C.F.R. [section] 7.4000 to the extent that the regulation
barred state officials from seeking judicial enforcement of
non-preempted state laws against national banks. Cuomo v. Clearing House
Ass’n, 129 S. Ct. 2710, 2721-22 (2009). As of April 5, 2011, the
Government Printing Office website showed that the OCC had not amended
12 C.F.R. [section] 7.4000 since January 13, 2004, and that subsections
(a)(iv) and (b)(2) of that regulation remained in force. The OCC relied
on those subsections in Cuomo to support its claim that state officials
were prohibited from suing national banks to enforce non-preempted state
laws. The Supreme Court held that the OCC lacked authority to adopt such
a prohibition. See Cuomo, 129 S. Ct. at 2714-15, 2721-22; id. at 2722
(Thomas, J., dissenting); see also Electronic Code of Federal
Regulations, U.S. Gov’t Printing Office,
http://ecfr.gpoaccess.gov/cgi/tltext/textidx?c=ecfr&sid=
d7126a89d8938f9481bc8ea5e8083dca&rgn=div8&view=text&
node=12:1.0.1.1.7.4.4.1&idno=12 (last visited June 29, 2011)
(reprinting 12 C.F.R. [section] 7.4000 as in effect on April 5, 2011).

(359.) Dodd-Frank [section] 1047(a) (to be codified at 12 U.S.C.
[section] 25b(i)).

(360.) Id.

(361.) Cuomo, 129 S. Ct. at 2710 (2009).

(362.) Saunders, supra note 235, at 9; Wilmarth, supra note 112, at
1-12, 16-19.

(363.) Dodd-Frank [section] 1047(a) (enacting [section] 5136C(i) of
the NBA).

(364.) Cuomo, 129 S. Ct. at 2715, 2721-22.

(365.) 12 U.S.C. [section] 484(a) (2006).

(366.) Dodd-Frank [section][section] 1046, 1047(b) (enacting
[section] 6 of HOLA).

(367.) Id. [section] 1046 (enacting [section] 6(a) of HOLA).

(368.) See S. Rep. No. 111-176, at 176 (2010) (“Section 1046
amends [HOLA] to clarify that State law preemption standards for Federal
savings associations and their subsidiaries shall be made in accordance
with the standards applicable to national banks.”).

(369.) See, e.g., Bank of Am. v. City of San Francisco, 309 F.3d
551, 558-64 (9th Cir. 2002), cert. denied, 538 U.S. 1069 (2003) (holding
that HOLA established a regime of field preemption while preemption
issues under the NBA should be determined based on conflict preemption
principles). See also Wilmarth, supra note 93, at 321-24 (discussing
other lower court decisions indicating that the OTS possessed a broader
authority under HOLA to adopt rules preempting state laws than the OCC
was granted under the NBA).

(370.) Dodd-Frank [section] 1046 (enacting [section] 6(b) of HOLA).

(371.) Id. [section] 1047(b) (enacting [section] 6(c) of HOLA).

(372.) See supra Part III.D.4 (discussing [section] 5136C(i) of the
NBA).

(373.) 12 C.F.R. [section][section] 557.11(b), 560.2(a), 545.2
(2010). As of July 21, 2011 (the “designated transfer date”),
the OCC will assume responsibility for administering and enforcing the
OTS’s regulations governing federally- chartered thrifts. See supra
notes 160, 192, 244 and accompanying text.

(374.) Id.

(375.) See supra Parts III.D.3.a, III.D.3.b (explaining why the
OCC’s 2004 preemption rules do not comply with the requirements of
[section] 5136C); Wilmarth, supra note 93, at 228, 233-35 (describing
the close similarity between the OCC’s and the OTS’s
preemption rules).

(376.) See supra Parts III.D.2.d, III.D.3.c (discussing Sections
5136C(b)(2), (e), (h) of the NBA).

(377.) See id. (discussing court decisions overruled by Sections
5136C(b)(2), (e) and (h)).

(378.) See 12 C.F.R. [section] 559.3(n) (declaring that state laws
are preempted from applying to operating subsidiaries to the same extent
that such laws are preempted with respect to the parent thrifts).

(379.) See State Farm Bank, F.S.B. v. Reardon, 539 F.3d 336 (6th
Cir. 2008) (upholding OTS ruling declaring that agents of a federal
thrift did not have to comply with state laws regulating mortgage
brokers).

(380.) See supra note 248 and accompanying text (discussing
Dodd-Frank’s definition of “State consumer financial
laws”).

(381.) Dodd-Frank [section] 1046 (enacting [section] 6(a) of HOLA).

(382.) Part III.D.6, infra.

(383.) See supra notes 248-49 and accompanying text (discussing the
fact that Dodd-Frank’s new preemption standards apply only to
“State consumer financial laws” and do not apply to general
state laws).

(384.) See S. Rep. No. 111-176, at 175 (2010) (stating that
Dodd-Frank’s new preemption standard for national banks and federal
thrifts “does not alter the preemption standards for State laws of
general applicability to business conduct”).

(385.) O’Melveny & Myers v. FDIC, 512 U.S. 79, 85 (1994).

(386.) Similarly, the House-Senate conference report on a 1994
interstate banking statute expressed the conferees’ agreement with
the general application of state laws to national banks. The conferees
explained that “[u]nder well-established judicial principles,
national banks are subject to State law in many significant respects….
Courts generally use a rule of construction that avoids finding a
conflict where possible.” H.R. Rep. No. 103-651 at 53 (Conf. Rep.),
reprinted in 1994 U.S.C.C.A.N. 2068, 2074. The conferees added that the
1994 legislation “does not change these judicially-established
principles.” Id.; see also Wilmarth, supra note 93, at 208-09
(contending that the conference report supports the view that
“Congress strongly reaffirmed its support for the general
application of state laws to national banks when it passed the [ 1994
legislation]”).

(387.) Forest Grove Sch. Dist. v. T.A., 129 S. Ct. 2484, 2492
(2009) (quoting Lorillard v. Pons, 434 U.S. 575, 580 (1978)).

(388.) Cuomo v. Clearing House Ass’n, 129 S. Ct. 2710 (2009).

(389.) First Nat’l Bank in St. Louis v. Missouri, 263 U.S.
640, 656 (1924).

(390.) Cuomo, 129 S. Ct. at 2720.

(391.) Id.

(392.) See supra Part III.D.4 (discussing the incorporation of
Cuomo in section 5136C(i) of the NBA).

(393.) St. Louis, 263 U.S. at 656 (quoting McClellan v. Chipman,
164 U.S. 347, 357 (1896)).

(394.) Id.

(395.) Atherton v. FDIC, 519 U.S. 213 (1997).

(396.) Id. at 222.

(397.) National Bank v. Commonwealth, 76 U.S. (9 Wall.) 353 (1870).

(398.) Atherton, 519 U.S. at 222-23 (quoting Commonwealth, 76 U.S.
at 362).

(399.) Levitin, supra note 17, at 174-75; Wilmarth, supra note 93,
at 241, 241-42 n.60; see also Tiffany v. Nat’l Bank of Missouri, 85
U.S. 409, 413 (1874) (observing that national banks were
“established for the purpose, in part, of providing a currency for
the whole country, and in part to create a market for the loans of the
General government”).

(400.) Levitin, supra note 17, at 175.

(401.) Id.; Wilmarth, supra note 93, at 241-46.

(402.) McClellan v. Chipman, 164 U.S. 347, 357 (1896).

(403.) Id. at 348 (quoting 157 Mass. Pub. Stat. [section] 96
(1882)).

(404.) Id. at 358.

(405.) Id. at 359, 361.

(406.) Anderson Nat’l Bank v. Luckett, 321 U.S. 233 (1948).

(407.) Id. at 247.

(408.) Id. at 236.

(409.) Id. at 248.

(410.) Id. (citations omitted).

(411.) Anderson, 321 U.S. at 248-49.

(412.) See supra note 387 and accompanying text (citing and quoting
Forest Grove Sch. Dist. v. T.A., 129 S. Ct. 2484, 2492 (2009)).

(413.) See supra notes 248-49 and accompanying text (explaining
that the new preemption standards in Section 5136C refer only to
“State consumer financial laws” and do not mention state laws
of general application).

(414.) Wyeth v. Levine, 555 U.S. 555, 129 S. Ct. 1187 (2009).

(415.) Id. at 1204.

(416.) Id. at 1200.

(417.) Id. at 1199 n.7, 1199-1200.

(418.) Id. at 1200 (quoting Bonita Boats, Inc. v. Thunder Craft
Boats, Inc., 489 U.S. 141, 166-67 (1989) (internal quotation marks
omitted)).

(419.) See Smith v. BAC Home Loans Servicing, LP, No. 2110-w-00364,
2011 WL 843937, at *4, *11 (S.D. W. Va. Mar. 11, 2011) (holding, in view
of Wyeth, that a presumption against preemption should be applied in
determining the applicability of state laws of general application to
national banks).

(420.) See Wyeth, 129 S. Ct. at 1200 (citing 12 U.S.C. [section]
360(k)(a)).

(421.) Id. at 1195, 1195 n.3.

(422.) Id. at 1195 n.3. See also id. at 1200 (indicating that
Congress’s decision not to establish an express preemption regime
for drug labeling supported the application of “the presumption
against pre-emption”).

(423.) Cuomo v. Clearing House Ass’n, L.L.C., 129 S. Ct. 2710,
2718 (2009) (citing Wyeth).

(424.) See supra notes 388-411 and accompanying text (discussing
Commonwealth, McClellan, St. Louis, Anderson, and Cuomo).

(425.) See supra Part III.A-C (discussing the concurrent authority
of CFPB and the states to adopt and enforce consumer financial
protection laws). For discussions of “interactive federalism,”
a concept used to describe the legal, political and social effects of
overlapping federal and state regulatory roles in various fields

of economic and social policy, see Robert Ahdieh, Dialectical
Regulation, 38 Conn. L. Rev. 863, 881-82 (2006); Robert A. Schapiro,
Toward a Theory of Interactive Federalism, 91 Iowa L. Rev. 243, 248-49,
252-54 (2005).

(426.) Schapiro, supra note 425, at 249.

(427.) Ahdieh, supra note 425, at 883, 891-92; Schapiro, supra note
425, at 288.

(428.) Wilmarth, supra note 93, at 259-65. See also Arthur E.
Wilmarth, Jr., The Expansion of State Bank Powers, the Federal Response,
and the Case for Preserving the Dual Banking System, 58 Fordham L. Rev.
1133, 1157 (1990) (observing that “the dual banking system has
enabled the states to act as ‘laboratories]’ for
‘experimentation’ in the manner envisioned by Justice Brandeis
in … New State Ice Co. v. Liebmann.”); New State Ice Co. v.
Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting).

(429.) Margaret H. Lemos, State Enforcement of Federal Law 29-32,
26-27 (Cardozo Legal Stud. Working Paper No. 313, 2010), available at
http://ssrn.com/abstract=1685458.

(430.) Schapiro, supra note 425, at 288; see also Ahdieh, supra
note 425, at 889 (observing that “recurrently interacting [federal
and state] agencies” may benefit through “adaptive learning
from one another”).

(431.) Buzbee, supra note 16, at 1564-68.

(432.) Id. at 1588.

(433.) Schapiro, supra note 425, at 289-90; see also Ahdieh, supra
note 425, at 883.

(434.) Ahdieh, supra note 425, at 885-88; see also Jones, supra
note 156, at 114-26. In addition to the supplemental protection provided
by state enforcement actions, private litigants can use state tort laws
and other state laws of general application to “ferret out error or
misdeeds, and prompt change despite uninterested regulators, possibly
ignorant public interest groups, and resistant industry.” Buzbee,
supra note 16, at 1589; see also supra Part III.D.6 (discussing the
applicability of general state laws to national banks).

(435.) Ahdieh, supra note 425, at 885-88, 891; Jones, supra note
156, at 14-26; see also supra notes 156-57 and accompanying text
(discussing state enforcement actions to stop abusive practices by
securities firms).

(436.) See Buzbee, supra note 16, at 1564-68, 1586-89; Lemos, supra
note 429, at 21-32.

(437.) See supra Part II.E.2 (describing preemption of state
anti-predatory lending laws by the OCC and OTS).

(438.) Ahdieh, supra note 425, at 889-90; see also Jones, supra
note 156, at 121-24 (describing how “vertical competition”
between state AGs and the SEC produced stronger investor protection).

(439.) Ahdieh, supra note 425, at 889-90; see also Schapiro, supra
note 425, at 290-91 (acknowledging that regulatory “[o]verlap has
its costs” resulting from a lack of “uniformity” between
federal and state laws); supra Parts II.E.4, II.E.5 (contending that
federal preemption played an important role in enabling large financial
institutions to become more heavily engaged in risky nonprime lending,
thereby aggravating the financial crisis and requiring costly federal
bailouts of failing institutions); Wilmarth, supra note 19, at 1008-24,
1043-46 (same).

(440.) Ahdieh, supra note 425, at 887 n.136, 888; see also Jones,
supra note 156, at 123-25 (contending that “[m]aintaining multiple
levels of regulation provides an antidote to regulatory capture”
and also “maximize[es] scarce government resources” by making
it possible for federal and state officials to share “the costs of
complex investigations”).

(441.) Gillian E. Metzger, Federalism and Federal Agency Reform,
111 Colum. L. Rev. 1, 25 (2011); see also id. at 37 (observing that
recent Supreme Court decisions “could signal that the Court has
adopted a new understanding of federal-state relations under which the
states have a special role in monitoring and improving federal
administration”).

(442.) Barkow, supra note 7, at 17-18, 21-24 (discussing problem of
regulatory capture); Buzbee, supra note 16, at 1594-95, 1609-10 (same);
Levitin, supra note 17, at 159-61 (same).

(443.) See S. Rep. No. 111-176, at 9-11, 15-21, 161-64 (2010)
(discussing need for a strong and independent CFPB in view of past
failures by federal banking agencies); Bar-Gill & Warren, supra note
27, at 90-95 (describing influence wielded by large financial
institutions and other reasons why federal banking agencies failed to
protect consumers from abusive financial practices); Levitin, supra note
17, at 152-61 (same); McCoy et al., supra note 36, at 1343-66 (same);
Wilmarth, supra note 112, at 19-31 (same).

(444.) S. Rep. No. 111-176, at 11, 161-67, 172-73, 177 (2010); see
also Barkow, supra note 7, at 74-75, 77 (describing how CFPB’s
organization and funding are designed to protect CFPB against the risk
of capture); supra Part III.A (discussing CFPB’s organization and
funding).

(445.) Barkow, supra note 7, at 73; see also Joe Adler, Birth of a
New Kind of Regulator, Am. Banker, Dec. 2, 2010, at 12A (“While the
[banking] industry had several problems with Dodd-Frank, and many
opposed it outright, it was the consumer agency that generated the most
heartache during debate.”); Paul Wiseman et al., Big Job Looms for
New Consumer Protection Agency, USA Today, June 24, 2010, at 1B
(“Financial industry lobbyists have fought the new agency through
every step of the legislative process. And they aren’t likely to
give up once it is up and running.”); Robert G. Kaiser, The CFPA:
How a crusade to protect consumers lost its steam, Wash. Post, Jan. 31,
2010, at G01 (“Business groups–most vociferously the U.S. Chamber
of Commerce and the American Bankers Association–have campaigned
fiercely against what they describe as an unneeded, intrusive new agency
that would increase the cost of doing business.”).

(446.) Mike Ferrulo, Regulatory Reform: Neugebarger Bill Would
Allow Congress to Control Purse Strings

of Consumer Agency, 96 Banking Rep. (BNA) 285 (Feb. 15, 2011); Phil
Mattingly & Carter Dougherty, U.S. Consumer Bureau Funding Would
Drop 40 Percent Under Republican Plan, Bloomberg.com (Feb. 15, 2011),
http://www.bloomberg.com/news/2011-02-15/house-republicans-target-
consumer-protection-bureaufunding-in-budget-bill.html; Cheyenne Hopkins,
Political Sniping Dominates House Hearing on the CFPB, Am. Banker, Apr.
7, 2011, at 3; Jennifer Liberto, Republicans Aim to Weaken Consumer
Bureau, CNNMoney.com (Apr. 6, 2011),
http://money.cnn.com/2011/04/06/news/economy/republicans_consumer_
bureau/index.htm. As explained above, Dodd-Frank authorizes FSOC to
override a CFPB regulation if two-thirds of FSOC’s voting members
determine that the regulation would threaten the safety and soundness of
the United States banking system or the financial stability of the
United States. See supra note 211 and accompanying text (discussing
FSOC’s authority to veto CFPB’s regulations). A bill proposed
by Rep. Sean Duffy (R-Wis.) would allow a majority of FSOC’s voting
members to reject a CFPB rule if the rule threatened the safety and
soundness of the United States banking system. Hopkins, supra.

(447.) Joe Nocera, Talking Business: An Advocate Who Scares
Republicans, N.Y. Times, Mar. 19, 2011, at B1; New Consumer Agency Under
Fire From GOP, Banks, Assoc. Press Fin. Wire, Mar. 16, 2011.

(448.) Barkow, supra note 7, at 65-72; Levitin, supra note 17, at
162.

(449.) Barkow, supra note 7, at 69-72.

(450.) Id. at 75-76; see supra Parts III.B, III.C (describing the
states’ supplemental lawmaking and law enforcement powers under
Title X of Dodd-Frank).

(451.) Barkow, supra note 7, at 69-72, 75-76.

(452.) Levitin, supra note 17, at 199-203. As Adam Levitin
observes, “the National Association of Attorneys General is often
jocularly referred to as the National Association of Aspiring
Governors.” Id. at 200 n.278.

(453.) Id. at 199-203; Barkow, supra note 7, at 56-57; Lemos, supra
note 429, at 19-27, 33-34, 43.

(454.) Lemos, supra note 429, at 19-27; Levitin, supra note 17, at
152-61, 199-203; see also supra Part II.D.2 (describing evidence that
the financial services industry exerted significant influence over
federal financial regulators during the credit boom leading up to the
financial crisis). Margaret Lemos points out that state AGs have
financial incentives as well as political motivations that encourage
vigorous enforcement, because state AGs frequently use their recoveries
of financial penalties to fund their own offices or to contribute to
their states’ budgets (with associated political benefits). Lemos,
supra note 429, at 25-27.

(455.) Barkow, supra note 7, at 56-58; Levitin, supra note 17, at
205.

(456.) Lemos, supra note 429, at 19 (describing state officials as
“natural policy entrepreneurs who can significantly influence what
sorts of conditions are publicly recognized as problems”) (quoting
Roderick Hills, Against Preemption: How Federalism Can Improve the
National Legislative Process, 82 N.Y.U. L. Rev. 1, 1516 (2007));
Levitin, supra note 17, at 199-200 (describing state AGs as
“normative entrepreneurs who seek to promote certain policy norms
as part of their political ambitions”).

(457.) Jones, supra note 156, at 14-26; Lemos, supra note 429, at
20-21; Levitin, supra note 17, at 201.

(458.) Mike Ferrulo, Regulatory Reform: State Attorneys General
Make Push for Consumer Financial Protection Agency, 94 Banking Rep.
(BNA) 309 (Feb. 16, 2010); Kaiser, supra note 445.

(459.) Carter Dougherty, Warren Recruits Dodd-Frank Enforcers From
50 States, Bloomberg.com (Dec. 2, 2010),
http://www.businessweek.com/news/2010-12-02/warren-recruits-Dodd-Frank-
enforcers-from-50states.html (“Enlisting state attorneys general is
part of Warren’s strategy of making common cause with people who
believe in the agency’s new mission and can support it for the long
term.”); see also Adler, supra note 445 (describing Professor
Warren’s role in conceiving and organizing CFPB); Julianna Goldman,
Warren Plays Volcker-Like Role for Obama in Finance Regulation,
Bloomberg.com (Sept. 24, 2010),
http://www.businessweek.com/news/2010-09-24/warren-plays-volcker-like-role- for-obama-in-financeregulation.html (same).

(460.) Cheyenne Hopkins, Ohio AG Among Three CFPB Hires, Am.
Banker, Dec. 16, 2010, at 16.

(461.) Thecla Fabian, State Bank Regulators Agree to Cooperate,
Focus on Non-Bank Providers, 96 Banking Rep. (BNA) 54 (Jan. 11, 2011)
(reporting on agreement between CFPB and state banking commissioners to
coordinate examination procedures and share examination findings with
respect to non-bank providers of consumer financial services, including
mortgage lenders, money transmitters, check cashers, payday lenders, and
consumer finance companies); Cheyenne Hopkins, Consumer Bureau, AGs Tout
Cooperation, Am. Banker, Apr. 23, 2011, at 3 (reporting on joint
statement of principles issued by CFPB and the 50 state AGs to develop
joint training programs and coordinate enforcement activities).

Arthur E. Wilmarth, Jr., Professor of Law, George Washington
University Law School. I am grateful to Michael Campbell, Kathleen
Engel, Kathleen Keest, Kim Krawiec, Adam Levitin, Patricia McCoy, Alan
Morrison, Elizabeth Renuart, Lauren Saunders, Heidi Schooner, Catherine
Sharkey and Cynthia Williams for helpful comments and conversations.
Unless otherwise indicated, this article includes developments through
April 12, 2010.