The Office of the Comptroller of the Currency (OCC) recently issued Bulletin 2020-62 to remind national banks and federal savings associations (collectively, banks) that each are governed primarily by uniform federal standards from the Supremacy Clause of the U.S. Constitution. OCC issued the bulletin out of concern as many state and local authorities have taken, or may consider taking, legislative, executive, or other actions to respond to the economic disruptions caused by the spread of COVID-19. Of particular concern are actions involving foreclosure and repossession moratoriums, loan forbearance, limitations on the interest and fees banks may charge, and requiring banks to report related information to state or local officials or imposing penalties for violations of these requirements.
Under the Supremacy Clause of the U.S. Constitution, banks are permitted to achieve efficiencies associated with operating under a uniform set of rules. Therefore, OCC reminds banks that federal law preempts state and local laws that impermissibly conflict with banks’ exercise of federally authorized powers. The standard used to help determine preemption is set forth in Barnett Bank of Marion County, N.A. v. Nelson. 517 U.S. 25 (1996).
OCC regulations provide examples of the types of state laws that do not apply to banks’ lending and deposit-taking activities—including state law limitations on: terms of credit, such as the schedule for repayment and interest, amortization of loans, balance, payments due, minimum payments, and term to maturity; disbursements and repayments; and processing, origination, and servicing mortgages. OCC regulations also address interest and non-interest fees.
OCC also reminds banks that its regulations preempt state laws which conflict with the real estate lending powers of banks and specifically preempt state laws that interfere with banks’ ability to make mortgage loans secured by real estate. State action that limits banks’ ability to foreclose on a defaulted loan and take possession of collateral, beyond what is provided for in the CARES Act, would interfere with banks’ powers to make secured mortgage loans. In addition, as provided by statute, set forth in OCC regulations, and recently reiterated in OCC Bulletin 2020-43, OCC has exclusive visitorial authority with respect to banks. Requirements to report to state and local officials generally run afoul of this exclusive authority.
If a bank learns that a local authority may consider taking action involving the type of activity listed above, please contact WBA Legal for further discussion. In addition, as each state or local action presents unique considerations, OCC recommends that banks consult with counsel to determine the applicability of any particular state or local law. Banks and their counsel may also contact OCC with questions.