Iowa Federal Court Holds That State Electronic Funds Transfer Law Is Preempted

On August 29, the U.S. District Court for the Southern District of Iowa held that a state statute regulating state bank electronic funds transfers (EFTs) was preempted with respect to how a national bank could provide services to those state banks. U.S. Bank N.A. v. Schipper, Case No. 4:10-cv-00064 (S.D. Iowa Aug. 29, 2011). In this case, U.S. Bank provided EFT services to Iowa state-chartered banks and sought a declaration that the State regulators could not enforce the Iowa Electronic Transfer of Funds Act against the national bank or any other financial institution engaging in business with the national bank. The District Court agreed, finding that the OCC has specified that national banks may provide to other financial institutions any service the bank may perform for itself, including EFT services without qualification or reservation. Furthermore, the Court held that the Iowa statute, while not directly enforceable against a national bank, does significantly impair the bank's ability to exercise its federally granted powers. The Court issued a permanent injunction, prohibiting the state regulatory agencies from enforcing the state statutory sections at issue against U.S. Bank or any entity to which U.S. Bank provides the EFT-related services. Importantly, the Court also stated that the Dodd-Frank Act adopted the same standard applied by the U.S. Supreme Court in its 2007 Watters v. Wachovia decision, and that it did not materially alter the standard for preemption the Court must apply.  The court thus issued a permanent injunction.