In 2005, the Attorney General for New York began an investigation into lending practices by national banks in the State of New York and whether these practices violated New York’s fair-lending laws. As part of the investigation, the Attorney General (Eliot Spitzer) sent a letter to a number of national banks asking that they provide specific non-public information about their lending practices. These letters were sent “in lieu of subpoena.”
The Office of the Comptroller of the Currency (“OCC”) and a banking trade group, the Clearing House Association, brought suit to prevent the information request, on the basis that OCC’s regulations under the federal National Bank Act prohibited state law enforcement against national banks. Section 484(a) of the National Bank Act reads:
“No national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts of justice or such as shall be, or have been exercised or directed by Congress or by either House thereof or by any committee of Congress or of either House duly authorized.”
The OCC, charged with administering the National Bank Act adopted regulations further defining the term “visitorial powers.” The regulations stated in part that “(o)nly the OCC. . .may exercise visitorial powers with respect to national banks. . . . State officials may not exercise visitorial powers. . .such as conducting examinations, inspecting or requiring the production of books or records of national banks, or prosecuting enforcement actions.” (emphasis added).
The district court entered an injunction in favor of OCC and the Clearing House Association which prohibited an attorney general from enforcing state fair-lending laws through demands for records or judicial proceedings. The Second Circuit Court of Appeals affirmed. The Supreme Court affirmed in part and reversed in part.
The Court, in its opinion written by Justice Scalia, started its analysis by looking at prior decisions to help determine the “outer limits” of the term “visitorial powers,” noting that the Supreme Court has “always understood ‘visitation’ as [the] right to oversee corporate affairs, quite separate from the power to enforce the law.” For example, in First Nat. Bank in St. Louis v. Missouri, 263 U.S. 640 (1924), the Court upheld the right of the Attorney General of Missouri to bring a suit to enforce a state anti-bank-branching law against a national bank. In that case, the Court stated the federal government may perform visitorial administrative oversight, such as “inquir[ing] by quo warranto whether a national bank is acting in excess of its charter powers.” However, if it is a state statute of general applicability which is not substantively pre-empted, then the Court stated that “the power of enforcement must rest with the [State] and not with” the federal government. The Court went further to state that “reading ‘visitorial powers’ as limiting only sovereign oversight and supervision would produce an entirely commonplace result – the precise result contemplated by our opinion in St. Louis, which said that if a state statute is valid as to national banks, ‘the corollary that it obligatory and enforceable necessarily results.”
The Court noted that the OCC had tried to limit its regulation by noting in its argument that existing case law did recognize that states retained some power to regulate national banks, in areas such as contract, debt collection, taxation, zoning, criminal, and more. However, the Court noted that the language of OCC’s regulation was much more since it categorically prohibited “prosecuting enforcement actions” and defined visitorial powers to include “[e]nforcing compliance with any applicable. . .state laws concerning” “activities authorized or permitted pursuant to federal banking law.”
The Court concluded by applying the above-mentioned principles to the case. “Visitorial powers” in the National Bank Act:
“refers to a sovereign’s supervisory powers over corporations. They include any form of administrative oversight that allows a sovereign to inspect books and records on demand, even if the process is mediated by a court through prerogative writs or similar means.”
However, in this case the state attorney general was not acting in the “sovereign-as-supervisor” role, but instead was in the role “sovereign-as-law-enforcer.” This role is not a “visitorial power” and this, the OCC erred by extending the definition to include “prosecuting enforcement actions” in state courts.
The judgment of the Second Circuit was affirmed in part and reversed in part. The particular action by the Attorney General, the threatening letter “in lieu of subpoena,” is not an exercise of power of law enforcement “vested in the courts of justice” which the National Bank Act exempts from the ban on the exercise of supervisory power. The Court affirmed the injunction below as applied to the letter. More importantly, the Court vacated the injunction and reversed the lower courts decision that had prohibited the Attorney General from bringing a judicial enforcement action.
The decision can be found here.