The OCC has mounted a vigorous defense of federal preemption, calling it “a cornerstone of the dual banking system, under which federally and state-charted banks operate alongside each other.”

“Federal preemption has proven to be a powerful enabler of local and national prosperity and growth,” Acting Comptroller Rodney Hood wrote in a letter to Brandon Milhorn, President and CEO of the Conference of State Bank Supervisors, who called for rescinding the preemption rules. “Federally chartered banks, many of which operate across state lines, therefore may rely on preemption to remove barriers and achieve efficiencies associated with a uniform set of rules. Thus, federal preemption has helped to foster the development of national products and services and multi-state markets, which have benefited Individuals and businesses in every state and powered this Nation’s economy.”

This position differs from that of Biden Administration Acting Comptroller Michael Hsu, who said last year he believed the agency needed to reexamine the preemption rules.

Hood’s strong statement comes in response to a letter from Milhorn, who argued, among other things, that the preemption rules violate two of President Trump’s Executive Orders. One Executive Order directs federal departments and agencies to rescind regulations that “are based on anything other than the best reading of the underlying statutory authority.”

The second Executive Order directs agency heads to “eliminate regulations that are anti-competitive, including those that “have the effect of limiting competition between competing entities.”

Rather than reflecting the best reading of the statute, Milhorn asserted that the OCC’s preemption rules, finalized in 2011, ignore the plain language of and Congressional intent reflected in the National Bank Act, which codifies the standard for when the OCC may preempt a state consumer finance law.

“The preemption regulations are anti-competitive by inappropriately shielding national banks from state consumer financial laws that apply to similarly situated state-chartered banks and state-licensed nonbank firms,” Milhorn added.

The CSBS argues that instead of considering preemption on a case-by-case basis after enactment of Dodd-Frank, the OCC reissued its broad preemption rules from 2004.

“The OCC’s preemption regulations are clearly unlawful, inconsistent with Supreme Court rulings, and contrary to the public interest,” according to Milhorn.

In his response Hood contends that federal preemption allows federally and state-chartered banks to operate alongside each other.

Hood wrote that the OCC has thoroughly reviewed the points Milhorn raised and reaffirmed that its preemption regulations are valid under federal law.

The OCC’s preemption regulations are consistent with Dodd-Frank and Supreme Court precedent and as a result, they meet the requirements of the Executive Order requiring the rescinding of unlawful regulations, Hood added. And he told Milhorn that the OCC reviewed its preemption regulations following the enactment of Dodd-Frank.

The Supreme Court ruling in Cantero v. Bank of America could have a profound impact on preemption. In that case, the Supreme Court reversed and remanded the case to the Second Circuit, and rather than articulating a bright line test for preemption, instructed the circuit court to conduct a “nuanced analysis” to determine whether the National Bank Act preempts a New York state law requiring the payment of 2% interest on mortgage escrow accounts.

Per the Supreme Court, the Second Circuit must apply the preemption standard described in the Dodd-Frank Act, which provides that a state consumer financial law is preempted “only if” it discriminates against national banks in comparison with state banks; is preempted by another Federal law; or “prevents or significantly interferes with the exercise by the national bank of its powers,” as determined “in accordance with the legal standard for preemption in the decision of the Supreme Court of the United States” in Barnett Bank, N.A. v. Nelson. See 12 U.S.C. § 25b(b)(1).

As noted, Hood’s defense of the preemption rules also differs from that of Biden Administration Acting Michael Hsu, who said in a July 2024 speech to the Exchequer Club that in light of Cantero, the OCC intended to review the preemption rules.

“W]e are reviewing the agency’s 2020 interpretation of preemption [OCC Interpretive Letter No. 1173] under the Dodd-Frank Act to determine whether updates are needed in light of the recent Cantero decision,” Hsu said. “We need to develop a more nuanced and balanced approach to Barnett. Updating that interpretation could be a helpful step toward that.”

Hsu continued, “The combination of vigorously defending core preemption, while being more precise in defining and applying the Barnett standard, will sharpen the OCC’s preemption powers. Doing so will allow us to meet the challenges of increasing polarization consistent with our rich history and deep roots.”

Now, Acting Comptroller Hood’s strong defense of the preemption rules appears to negate Hsu’s effort to reexamine the rules.

But that strong defense of the preemption rules may soon be tested in court. In addition to the Second, Circuit, the First and Ninth Circuit Courts of Appeal are currently considering whether the National Bank Act preempts various state laws which require the payment of interest on residential mortgage escrow accounts under the Supreme Court’s holding last year in the Cantero case. One or more of those three Circuit Courts may comment on the legality of the OCC’s preemption regulations.

In light of the Supreme Court’s opinion in Loper Bright Enterprises which overruled the Chevron Deference Doctrine (i.e. the doctrine which required courts to defer to the reasonable regulations of a federal agency which interprets an ambiguous statute), it is doubtful that any court will simply defer to the OCC’s regulations. As a result, we have counseled national bank clients not to rely exclusively on OCC regulations in evaluating whether particular state statutes are preempted.