On the last day of the 2008 term, the US Supreme Court issued a surprise ruling in Cuomo v. Clearing House Association ruling that states may police banks for discrimination in mortgage lending despite statutory language in the Civil War-era National Bank Act (”NBA”) that appeared to preempt states from regulating. The case involved an attempt by the NY Attorney General to investigate bank lending practices where a disproportionately large percentage of high-interest mortgages were made to minorities. When the NY Attorney General sent letters of inquiry to a number of national banks, including Wells Fargo & Co., Citibank and JP Morgan Chase & Co., a bank consortium called the Clearing House Association filed suit to stop the investigation.
The Court ruled that a provision of the NBA, 12 U.S.C. § 484(a) which states that “[n]o 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” was invalid. The 5-4 opinion by Justice Antonin Scalia, stated that “The Comptroller’s regulation purporting to pre-empt state law enforcement is not a reasonable interpretation of the NBA”. In 2007, the 2nd Circuit Court of Appeals opinion said that the interpretation of the NBA by the Office of the Comptroller of the Currency was entitled to deference, and the NY Attorney General’s office had no “visitorial powers” over national banks.
The decision was a surprise victory for consumer groups and state officials because repeated attempts to challenge the National Bank Act of 1864 have nearly always been rejected in court. The ruling will allow state attorneys general in certain cases to sue any of the country’s 1,500 national banks.