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Financial Services Law Insights and Observations

OCC bulletin discusses preemption and Covid-19

Federal Issues OCC Preemption State Issues Covid-19

Federal Issues

On June 17, the OCC issued Bulletin 2020-62 discussing Covid-19-related relief programs and preemption, reminding stakeholders that banks are governed primarily by federal standards and generally are not subject to state law limitations. While the OCC recognizes the “well-intended” efforts by state and local governments to respond to the economic disruptions caused by the spread of Covid-19, the Bulletin states the agency is “concerned that the proliferation of a multitude of competing requirements will conflict with banks’ ability to operate effectively and efficiently,” which could harm consumers by risking the banks’ safety and soundness. The Bulletin cites to the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson to remind stakeholders that federal law preempts state and local laws that prevent or largely interfere with a national bank’s ability to exercise its powers. The Bulletin provides specific examples of the types of state laws that do not apply to banks’ lending and deposit activities, including limitations on (i) terms of credit; (ii) disbursement and repayments; and (iii) processing, originating, and servicing mortgages. Additionally, the Bulletin notes that any state action that limits banks’ foreclosure activities beyond what is required by the CARES Act is preempted by OCC regulations. Lastly, the OCC reminds stakeholders of Bulletin 2020-43, which details its exclusive visitorial authority of banks (covered by InfoBytes here) and encourages banks to “consult with counsel to determine the applicability of any particular state or local law.”

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