On January 21, a bipartisan coalition of 22 state attorneys general, along with the Hawaii Office of Consumer Protection, sent a letter to Comptroller Joseph M. Otting of the Office of the Comptroller of the Currency, objecting to a proposed rule that may extend the right of national banking and savings associations preemption of state usury laws to non-banking entities.
Signatories of the letter include the A.G.s of California, Colorado, District of Columbia, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, South Dakota, Virginia, Washington, and Wisconsin.
Under the National Bank Act, 12 U.S.C. §§ 1 et seq. (“NBA”), national banks are permitted to charge the maximum interest rate permissible in the state they are located, and to “export” that interest rate to borrowers in other states. Thus, state usury laws are preempted by loans originated from national banks.
The OCC Rule focuses on what the OCC describes as a “valid-when-made,” principle, that is, the NBA preemption is a property interest assignable to a non-bank. Contrary to this argument, the state A.G.s deem the NBA preemptive status as not conferred under contract, but under federal law. As such, it is an inalienable right only afforded to national banks.
If the OCC Rule is adopted, it may be challenged in the courts. Troutman Sanders will continue to monitor and report back on any developments.