What the CFPB Isn’t Saying About State Investigations

In December of last year, a group of 21 state attorneys general sent letters to the CFPB and OCC demanding the federal agencies take action to require national banks to cooperate with state AG information requests. The AGs asserted these information requests are necessary to support state enforcement of applicable state laws and that, absent bank cooperation, state AGs will be forced to bring action in court if they suspect violations of law by national banks-that is, banks that have federal charters and are primarily regulated and examined by the Office of the Comptroller of the Currency. In May, the CFPB responded to the state AGs.^[1] The CFPB's response suggests that the agency will not go as far as the AGs asked. Yet, it embraces the AGs' premise that national banks' "lack of cooperation with state inquiries is problematic" and describes actions the CFPB will take to facilitate state investigations. In doing so, it disregards controlling Supreme Court precedent and blackletter law that allocate regulatory and enforcement responsibilities over national banks between the states and federal government.

Cuomo, Dodd-Frank and "Visitorial Powers"

The OCC has what is known as "exclusive visitorial authority" over national banks, which includes the right to inspect books and records.^[2] This authority comes from 12 U.S.C. 484, which expressly provides that "no national bank shall be subject to any visitorial powers except as authorized by Federal law [or] vested in the courts of justice…" The Supreme Court analyzed the history and meaning of that provision in the landmark 2009 National Bank Act case, Cuomo v. The Clearing House Association.^[3]

The holding in Cuomo is simple. In an opinion delivered by Justice Scalia and joined by Justices Stevens, Souter, Ginsberg and Breyer, the Court found that a state attorney general may bring a suit in court to enforce state law against a national bank. But they may not exercise "visitorial powers"-that is, non-judicial administrative information requests or other efforts to regulate or supervise activities of national banks authorized or permitted under federal law. To quote the Court: "'Visitorial powers' in the National Bank Act…include any form of administrative oversight that allows a sovereign to inspect books and records on demand…"^[4]

The Supreme Court's decision could not be clearer: The states may have authority to enforce their applicable laws in court against national banks. But that does not extend to administrative demands for information outside of judicial proceedings. Again, quoting the Court: "a sovereign's 'visitorial powers' and its power to enforce the law are two different things." Full stop.^[5]

The Court explains the compelling rationale for this division of responsibilities between state and federal authorities. It is worth quoting at length:

Channeling state attorneys general into judicial law-enforcement proceedings (rather than allowing them to exercise "visitorial" oversight) would preserve a regime of exclusive administrative oversight by the Comptroller while honoring in fact rather than merely in theory Congress's decision not to pre-empt substantive state law.

And:

On a pragmatic level, the difference between visitation and law enforcement is clear. If a State chooses to pursue enforcement of its laws in court, then it is not exercising its power of visitation and will be treated like a litigant. An attorney general acting as a civil litigant must file a lawsuit, survive a motion to dismiss, endure the rules of procedure and discovery, and risk sanctions if his claim is frivolous or his discovery tactics abusive. Judges are trusted to prevent "fishing expeditions" or an undirected rummaging through bank books and records for evidence of some unknown wrongdoing. In New York, civil discovery is far more limited than the full range of "visitorial powers" that may be exercised by a sovereign. Courts may enter protective orders to prevent "unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice,"… and may supervise discovery sua sponte…. A visitor, by contrast, may inspect books and records at any time for any or no reason.

In other words, Congress granted visitorial powers over national banks to the Comptroller of the Currency to ensure consistent federal administrative oversight by a primary regulator, subject to exceptions provided by federal law. Allowing state investigations of a bank's compliance with laws to proceed outside of judicial proceedings risks subjecting banks to compliance reviews by authorities across 50 states, which could very well entail divergent opinions and interpretations of the same practices. Instead, if state authorities have reason to believe a national bank is violating an applicable state law, they have at least two options: They can alert federal regulators with examination authority over the bank, or they can bring a suit in court to enforce the law, as the Supreme Court held in Cuomo.^[6]

If the Supreme Court's precedent were not compelling enough, Congress effectively codified the decision in the Dodd-Frank Act. The law specifies that, in accordance with the Cuomo decision, no provision of Title 12 of the U.S. Code shall be construed to limit "any attorney general (or other chief law enforcement officer) of any State to bring an action against a national bank in a court of appropriate jurisdiction to enforce an applicable law…"^[7] This provision was adopted as part of a larger set of procedural changes to the preemption framework for national banks that specifically sought to clarify regulatory and enforcement responsibilities for consumer financial protection laws among federal and state authorities.^[8] That included granting the CFPB authority to require reports and examine large banks for compliance with federal consumer financial laws,^[9] as well as allowing state AGs to enforce certain federal consumer laws against national banks in court.^[10] Thus, in the Dodd-Frank Act, Congress addressed the division of responsibilities between federal and state authorities for examining compliance with and enforcing consumer financial laws and chose to adopt the Cuomo standard as the law of the land with respect to visitorial power over national banks.

The AG Letter

Against this backdrop, the state AGs said in their letters to Acting Comptroller of the Currency Michael Hsu and CFPB Director Rohit Chopra that they want national banks to provide them with more information upon request when they are investigating potential violations of law. The letter asserts that state AGs' ability to compel information, documents and testimony outside of court proceedings "remains unaddressed at present." To the contrary, as described above, it has been addressed clearly and recently by both the Supreme Court and the United States Congress.

The AGs request that federal agencies use their examination authority to require national banks to respond to state administrative investigative demands and impose adverse consequences (for example, through the examination process) on banks that fail to do so. Specifically, the AGs ask the OCC and CFPB to warn national banks "that it creates a material risk that may give rise to unfair or abusive acts or practices for any [b]ank to refuse to cooperate with State AG information requests that seek to further enforcement of applicable state laws…"^[11]

The AGs' letter is remarkably inventive in how it characterizes established law. It asserts: "The inescapable conclusion of both the [Supreme Court's 2009] Cuomo decision and Dodd-Frank is clear: state law and its enforcement by State AGs has a central role to play in promoting the soundness and safety of all financial institutions." Therefore, the AGs conclude, national banks should be expected to cooperate with state AG information requests, and failing to cooperate should be regarded as evidence of malfeasance.

That is, the letter cites the Supreme Court's Cuomo decision and the Dodd-Frank provision recognizing it as support for the opposite of what that decision and the statute actually say about state investigations. This part of the AGs' letter is a misstatement of the law. Perhaps more troubling, the CFPB's response allows the misstatement of law to stand.

The CFPB's Response

The CFPB responded to the state AGs on May 14 with a letter entitled "Evasion of State Law and Lack of Cooperation by Large Banks." The letter does not go as far as the state AGs had requested. But it agrees with the premise that banks' "lack of cooperation with state inquiries is problematic." It also encourages state AGs to notify the CFPB "regarding potential misconduct by banks with over $10 billion in assets, especially when those banks are not cooperating with [State AG] inquiries," and says the CFPB will consider "failure to cooperate" with other authorities a "risk factor" in the CFPB's exercise of its "visitorial supervision."

The text is cryptic, probably intentionally so. On one hand, some of it could be read as a reference to the CFPB's preexisting efforts to promote and support state enforcement activity.^[12] On the other hand, it could be read more threateningly to indicate the CFPB will view a bank's limited response to state administrative inquiries-which may be perfectly legal and within the bank's procedural rights-as evidence of misconduct. Further, the CFPB indicates it may take action against a bank that is not willing to cooperate with state administrative inquiries when that cooperation would be inconsistent with federal visitorial powers. This would be concerning. Basic principles of due process should prevent an agency of the federal government from penalizing and prejudging a regulated party simply because they followed established law. Stated differently, abiding by the law on visitorial powers should not increase the odds that the bank will face regulatory scrutiny and potential adverse action.

Finally, the CFPB's response letter then pivots and says the CFPB is "catalog[ing] preemption abuses" and is in touch with the Department of Justice and other federal agencies on these possible abuses. Preemption "abuses" is a misnomer in this context, for two reasons.

First, the question of whether a state consumer law is substantively preempted for a national bank is totally distinct from the visitorial powers questions raised in the AGs' letter. It is a feature of the framework Congress established in Dodd-Frank that a state consumer law may apply to a national bank in specified circumstances,^[13] but federal regulators retain exclusive authority to examine national banks for compliance with the law.^[14]

Second, federal preemption, like the related concept of visitorial powers discussed above, is simply a fact of law. The concept descends from the U.S. Constitution's Supremacy Clause, which provides that federal law is "the supreme Law of the Land." Preemption ensures order and consistency for activities of national significance. Many areas of U.S. law have strong federal preemption frameworks: maritime law, immigration, nuclear safety and aviation, to name a few.^[15] For national banks, a long line of court precedent and specific statutory provisions address the application of state law to national banks. Most recently, the Supreme Court's decision in Cantero v. Bank of America reiterated the Court's historical precedents on national bank preemption. The Court confirmed, with respect to state consumer financial law, that the Dodd-Frank Act codified the standard for national bank preemption in the earlier Supreme Court case Barnett Bank of Marion County, N.A. v. Nelson.^[16] Moreover, Congress did not adopt "a bright-line test" for determining when a state consumer financial law is preempted for a national bank. Instead, it requires a nuanced analysis with careful comparison to earlier Court precedents. It is unclear from the CFPB's letter what criteria the CFPB is using to identify and catalogue "preemption abuses" and if the agency would hold banks to a different standard than the one the Supreme Court recently articulated in Cantero. It is also unclear what the CFPB's legal authority would be to make such interpretations. The Dodd-Frank Act provision that codified the preemption standards for state consumer financial law tasks the OCC, and not the CFPB, with making preemption determinations with respect to state consumer financial laws and only requires the OCC to first consult with the CFPB in certain circumstances involving the laws of more than one state.^[17]

The OCC has not yet publicly responded to the AGs' letter, leaving a gap in this exchange about the laws that apply to national banks. It is true the Dodd-Frank Act carved out important roles for both the CFPB and state AGs in examining (in the case of the CFPB) and enforcing (both CFPB and state AGs) consumer laws. However, the Dodd-Frank Act also (i) preserved the OCC's exclusive visitorial powers, except as otherwise explicitly authorized by Federal law, and (ii) as noted above, tasked the OCC with making preemption determinations with respect to state consumer financial laws, in consultation with the CFPB in certain circumstances. Thus, the OCC is critical to implementing this framework established in the Dodd-Frank Act and ensuring the division of responsibilities functions as Congress intended.

Conclusion

The CFPB's response to the state AGs is carefully worded. It bobs and weaves around the well-established law that allocates regulatory and supervisory authority between states and the federal government. While there is a role for state AGs to play in enforcing applicable state laws, state administrative investigative demands and other requests that amount to visitorial powers violate established law governing national banks. Federal agencies like the CFPB should not use their supervisory powers to try to change this established law with threats of their own administrative action-doing so could lead to duplicative or conflicting expectations and demands across the 50 states and the federal government, undermining the efficiency of our banking system. "Diverse and duplicative superintendence of national banks' engagement in the business of banking," according to the Supreme Court, "is precisely what the [National Bank Act] was designed to prevent."^[18]

[1] The CFPB's response was covered in the media on May 20, 2024. As of this writing, the OCC has not publicly responded to the AGs' letter.

[2] 12 C.F.R. 7.4000(a)(2) and (3).

[3] Cuomo v. Clearing House Ass'n, L.L.C., 557 U.S. 519, 531 (2009).

[4] In a separate opinion concurring in part and dissenting in part, Chief Justice Roberts and Justices Thomas, Kennedy and Alito said they would have gone further and upheld the OCC's determination that 12 USC 484 can foreclose even enforcement action brought in court by state AGs.

[5] The state AGs ignore this clear distinction, asserting that the OCC "has left unaddressed a key aspect of effective state law enforcement: the ability of the State AGs to seek information, documents, and testimony from the Banks in the course of enforcing indisputably applicable laws."

[6] OCC guidance advises state authorities to alert the OCC if they suspect violations of law by national banks. See OCC Advisory Letter 2002-9 (Nov. 25, 2002).

[7] 12 U.S.C. 25b(i) (emphasis added). The full text reads:

In accordance with the decision of the Supreme Court … in Cuomo …, no provision of this title which relates to visitorial powers or otherwise limits or restricts the visitorial authority to which any national bank is subject shall be construed as limiting or restricting the authority of any attorney general (or other chief law enforcement officer) of any State to bring an action against a national bank in a court of appropriate jurisdiction to enforce an applicable law to seek relief as authorized by such law.

[8] See generally Congressional Research Service, Cuomo v. The Clearing House Association, L.L.C.: National Banks Are Subject to State Lawsuits to Enforce Non-Preempted State Laws (Jan. 11, 2011).

[9] 12 U.S.C. 5515(b). This exercise of visitorial powers by the CFPB is "authorized by Federal law" under 12 U.S.C. 484 and reflected in the OCC's rules at 12 C.F.R. 7.4000(c)(1).

[10] 12 U.S.C. 5552(a)(1).

[11] In the letter to Acting Comptroller Michael Hsu, the AGs also ask the OCC, as the supervisor of national banks, to issue guidance declaring "it is unsafe and unsound" for a national bank to refuse to cooperate with such requests.

[12] See e.g., CFPB Press Release, CFPB Bolsters Enforcement Efforts by States (May 19, 2022), https://www.consumerfinance.gov/about-us/newsroom/cfpb-bolsters-enforcement-efforts-by-states/#:~:text=Washington%2C%20D.C.%20%E2%80%93%20Today%2C%20the,federal%20consumer%20financial%20protection%20law.

[13] 12 U.S.C. 25(b).

[14] 12 U.S.C. 484; 12 U.S.C. 5515(b).

[15] See, e.g., Arizona v. United States, 567 U.S. 387 (2012) ("The Government of the United States has broad, undoubted power over the subject of immigration and the status of aliens."); United States v. Locke, 529 U.S. 89 (2000) ("The authority of Congress to regulate interstate navigation, without embarrassment from intervention of the separate States and resulting difficulties with foreign nations, was cited in the Federalist Papers as one of the reasons for adopting the Constitution."); PG & E v. State Energy Comm'n, 461 U.S. 190 (1983) ("State safety regulation is not preempted only when it conflicts with federal law. Rather, the Federal Government has occupied the entire field of nuclear safety concerns, except the limited powers expressly ceded to the States."); Morales v. Trans World Airlines, Inc., 504 U.S. 374 (1992) ("State enforcement actions having a connection with, or reference to, airline 'rates, routes, or services' are pre-empted under [the Airline Deregulation Act of 1978].")

[16] 517 U.S. § 25 (1996). For an overview of the Cantero decision and its consequences, see BPI, Cantero v. Bank of America: An Explainer (June 3, 2024), https://bpi.com/cantero-v-bank-of-america-an-explainer/.

[17] 12 U.S.C. § 25b(b)(3).

[18] Watters v. Wachovia Bank, 550 U.S. 1, 21 (2007).

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