Banking and Financial Services Update
U.S. Office of the Comptroller of the Currency Addresses Federal Preemption of State and Local COVID-19 Actions
On June 17, 2020, the U.S. Office of the Comptroller of the Currency (the OCC) issued a bulletin reiterating that national banks, federal savings associations and federal branches and agencies of foreign banks (collectively, banks) are governed primarily by uniform federal standards.1 The bulletin was issued in light of recent and anticipated actions by state and local governments to respond to the economic disruptions caused by the spread of COVID-19. The bulletin is likely intended for state and local governments as much as the banks to which it is addressed. In particular, the OCC notes that many state or local COVID-19 related actions address foreclosure and repossession moratoriums, loan forbearance and limitations on the interest and fees banks may charge. These actions may also require banks to report related information to state or local officials and include penalties for violations of these requirements. The OCC expresses concern that while well intentioned, the proliferation of competing requirements will hamper banks’ ability to operate effectively and efficiently, potentially increasing the risk to banks’ safety and soundness and ultimately harming consumers.
Most significant, the bulletin reconfirms that federal preemption applies with respect to most state and local restrictions on lending by banks, regardless of their intention to address a period of economic turmoil. Specifically, the bulletin states the following:
- The OCC reminds national banks that federal preemption applies to state law limitations on terms of credit, such as the schedule for repayment and interest, amortization of loans, balance, payments due, minimum payments and term to maturity; disbursements and repayments; and processing, origination and servicing mortgages. OCC regulations also address interest and noninterest fees.
- OCC regulations preempt state laws that interfere with banks’ ability to make mortgage loans secured by real estate. State action that limits banks’ ability to foreclose on a defaulted loan and take possession of collateral, beyond what is provided for in the Coronavirus Aid, Relief and Economic Security Act, would interfere with banks’ powers to make secured mortgage loans.
The bulletin also reminds banks that the OCC has exclusive visitorial authority with respect to banks, which includes the sole authority to examine and supervise the activities of these federally chartered institutions. Requirements to report to state and local officials generally run afoul of this exclusive authority.
Finally, note that the bulletin does not address the direct public health regulations issued by state and local authorities related to returning to work. Whether the OCC will attempt to intercede in the application of public health, as opposed to economic health, directives by state or local authorities based on local COVID-19 conditions remains to be seen.
1 OCC Bulletin 2020-62 (June 17, 2020), available at https://occ.gov/news-issuances/bulletins/2020/bulletin-2020-62.html.
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